Notice to all participants in customer-member disputes adjudicated at FINRA, the Financial Industry Regulatory Authority: the following investor profile is FINRA’s definitive portrait of the typical, unsophisticated investor:

• Self-reliant when it comes to making decisions

• Optimistic

• Above average financial knowledge

• Above average income

• College educated

• Experienced a recent health or financial setback

• Open to listening to new ideas or sales pitches

The now debunked industry-friendly notion that the term “investor” is synonymous with “sophistication” has often been used in the past as justification for denying or limiting recovery for investment losses. Twenty years ago in the 1987 landmark Supreme Court case Shearson v. McMahon, in which Eppenstein and Eppenstein represented the investors, the argument was made by the industry that a person’s acumen and personal wealth somehow implied “sophistication” in the ability to either make sound financial investments or to avoid being defrauded by an unscrupulous broker. Now we hope that FINRA’s profile and other recent activity, such as its Regulatory Notice to Members 07-43, will have the intended effect of furthering investor protection in the marketplace (Notice 07-43 is entitled “FINRA Reminds Firms of Their Obligations Relating to Senior Investors and Highlights Industry Practices to Serve these Customers”).

Everyone, from individual senior citizens to institutional investors, is susceptible to falling victim to sales practice abuses or fraud. But if FINRA securities arbitration is to be truly fair in adjudicating such cases of broker misconduct, the arbitrators who sit as judge and jury will have to apply the “unsophisticated investor” profile fairly, and not penalize the investor who falls within the definition and has suffered damages.