A registered representative of a mid-sized broker dealer advised an elderly client with limited retirement income to purchase an investment product with high volatility and a long duration. When the client sought to liquidate the investment one month later to pay an unexpected medical bill, he was informed that his investment had already lost 20% in value. It was later determined that based on the client’s age, investment criteria and personal financial situation the product was unsuitable for the client. The registered representative and the broker dealer were both sued for negligence because the product did not fit within the client’s investment objective.
Lost Client: $12,000 in annual commission
Increase to E&O Premium: $15,000
Total Cost to Carrier: $138,000 (after deductible)