When an investment professional recommends or "solicits" an investment transaction, there must be "reasonable grounds" to believe that the investment is suitable for the client in light of the client's overall circumstances and investment objectives. If the investment professional ignores the financial condition or goals of the client, the investment professional runs the risk that the recommended transaction is unsuitable for the client.

Common characteristics of unsuitable investments are:

• Risk. It is usually improper for a broker to recommend an investor invest a substantial portion of his or her net worth in risky investments that such investor cannot reasonably tolerate.
  
  
• Illiquidity. It is usually improper for a broker to recommend an investor to invest a substantial portion of his or her assets in illiquid investments for which there is no ready market or that have substantial penalties or fees for early redemption.
  
  
• Concentration. It is usually improper for a broker to recommend an investor to invest a substantial portion of his or her assets into a single or insufficiently small number of securities.
  
  
• Tax Insensitive Investments. In cases where an investor needs to minimize his or her taxes, it is improper for a broker to recommend certain investments, such as certain actively traded mutual funds, that generate large and unnecessary tax liabilities.
  
  
• Double tax exemptions. It is usually improper for a broker to recommend an investor to invest money that is already free of income taxation on gains, such as money in an IRA, be invested in tax-free bonds or other tax-free securities.