Introduction
A blanket recommendation is an insistence given by a financial advisor or organisation to their clients to sell or buy a certain asset or product, irrespective of the compatibility of the product with their investment requirements and risk profile.
Understanding Blanket Recommendation
Generally, blanket recommendations may give advises about buying or selling a certain stock or any other class of asset. The purpose can be to alert the clients of the possible movement of the stock or any other security in either direction that the financial advisor or firm believes may happen.
If this anticipated move is on the upward direction, then the clients would be insisted to buy that stock or asset so as to capitalise on the probable scaling in the price. Likewise, if the expected move is on the downside, then the clients would be advised to sell that particular holding so as to prevent losses due to the fall in the price.
Drawbacks
Some view blank recommendation communications negatively as the recipient base would contain individuals from different investment backgrounds, and they all would still get the same recommendation from the financial advisor.
For example, a pensioner who generally has a lower risk tolerance and a young worker with a higher risk appetite would be receiving the same blanket recommendation from their financial advisor to invest in a certain stock as it has the potential to provide seemingly high returns.
The young worker will be in a better position to assume the risk and invest in the recommended stock as he still has a lot of time left to recover from the losses if the stock fails to perform as expected. However, the pensioner, who will invest the savings of his life will not be in a position to bear losses that may result due to the varying factors.
