Moulton & Arney, LLP Announces New FINRA Rule 2111 (Suitability) and Warns Elderly Investors of Potential Securities Fraud

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The attorneys at Moulton & Arney, LLP, can assist elderly investors to recoup investment losses due to investment fraud or broker misconduct.

Cindy Moulton

It has become an alarming trend for elderly investors to fall victim to unsuitable investments and Securities fraud.

The Financial Industry Regulatory Authority (FINRA) and its predecessor the NASD have long required financial advisors and securities firms to have a reasonable basis to believe a recommended investment is suitable for the investor. On July 9, 2012, NASD Rule 2310 was replaced by FINRA Rule 2111 (Suitability) that clarifies these suitability requirements. The new rule requires a financial advisor to exercise reasonable diligence to determine the customer’s investment profile. Factors considered for a profile determination include:

  •     The customer’s age
  •     Other investments
  •     Financial situation and needs
  •     Tax status
  •     Investment objectives
  •     Investment experience
  •     Investment time horizon
  •     Risk tolerance
  •     Liquidity needs.

Only after considering these factors and any other relevant investor information may a broker recommend a particular investment product or investment strategy. An asset allocation that is overly weighted in higher risk investments or investments with a long time horizon may be inappropriate for elderly investors.

The following investment products are also potentially unsuitable for elderly investors:

  • Hedge funds
  • Return optimization securities
  • Auction Rate Securities
  • Equity-indexed annuities
  • Structured products
  • Leveraged and inverse exchange –traded funds
  • Principal protected notes
  • Reverse convertibles and commodity futures-linked securities
  • Asset back securities
  • Unlisted Real Estate Investment Trusts or “REITs.”

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According to Reuters, FINRA’s new rule may weaken defenses previously used by brokerages in defense of suitability complaints. This conclusion stems from FINRA’s clarification that firms must provide suitable recommendations not only for each trade, but also for long-term strategies. Until this rule change, some firms have successfully defended suitability claims by convincing arbitration panels that the suitability requirements were limited to individual transactions.
Over the past several months, Moulton & Arney, LLP, has filed a number of cases on behalf of elderly investors who have suffered substantial losses in their retirement and other investment accounts due to investment fraud or other misconduct by their investment advisors. Several of these cases involve recommendations of inappropriate investments, including investments the elderly investor could not or did not understand or that were overly risky. Often the claims involve unsuitable investments that are inappropriate for elderly investors who live on fixed incomes and may not be able to earn income to replace lost investment dollars.

It has become an alarming trend for elderly investors to fall victim to unsuitable investments and Securities fraud. According to 2008 Census data, by the year 2020, nearly 55 million Americans will be age 65 or older. The Securities Exchange Commission (“SEC”), FINRA and the North American Securities Administrators Association (“NASAA”) are working together to protect the aging population from securities fraud. For more information, please see the Moulton & Arney, LLP Newsletter.

Investors should be particularly wary of unsolicited offers to invest, investment opportunities requiring up-front payments, promises of unrealistically high returns and little risk, high pressure tactics to act quickly or buy now, and internet or direct mail offerings.

About Moulton & Arney, LLP
Moulton & Arney is a Houston, Texas, based boutique litigation and FINRA arbitration law firm representing investors nationwide in claims to recover investment losses. The investment fraud attorneys at Moulton & Arney, LLP have extensive experience representing individual investors, in nearly all 50 states, in securities litigation and arbitration.

Attorney Cynthia R. Levin Moulton, the firm’s founder, has a proven track record in investment fraud claims involving an array of complex investment products. She has been named a Texas Super Lawyer in 2004, 2005, 2007, 2009, 2010, and 2011 a Thomson Reuters Service, is rated 5 out of 5 by, and is rated a 10.0 by To find out more about potential securities fraud claims, please visit

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