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The blanket recommendation involves a communication from a brokerage firm to all its customers. Generally, the communication has to do with advice on a given stock, with a recommendation to buy or sell the given stock or sector. The blanket recommendation is sent to all customers, regardless of the status of the investment portfolio, the stated investment goals of the client, or the level of risk tolerance usually exhibited by the customer.
The purpose behind the issuing of a blanket recommendation has to do with alerting all the clients of the brokerage firm to an upcoming change in the stock market that is anticipated to have a profound impact on a given stock or security. The change may lead to a significant rise in the price per share of a given stock, which would result in creating a sizable increase in the value of the stock portfolio that included shares of that stock. In contrast, if a significant downward trend is anticipated with a particular investment, the brokerage will use the blanket recommendation to alert customers of the high probability of the event, allowing anyone with shares to make a determination to unload the stocks before the price begins to decrease.
Brokerages tend to be somewhat conservative in the issuing of blanket recommendations. As with any type of professional advice, investors expect any type of stock recommendation issued by the broker to be accurate and reliable. For this reason, a brokerage will amass a large body of data that indicates the anticipated trend for the stock in question and run a number of scenarios before recommending a course of action.
Investors are encouraged to also conduct their own research before following the counsel contained in a blanket recommendation. While there is a degree of risk in any type of investment venture, taking the time to make sure that market indicators and conditions back up the conclusions reached in the blanket recommendation will help the investor decide whether to follow the advice or pass on the option.
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