Assessment and Evaluation Flashcards

A registered representative is assessing a client's risk tolerance for a new account. Which factor is LEAST relevant to this evaluation?

Answer: Current market index levels

Current market index levels are a market condition, not a client-specific factor relevant to individual risk tolerance assessment.

Under FINRA Rule 2111, what does the 'quantitative suitability' obligation require of a broker?

Answer: Avoiding excessive trading in a customer's account

Quantitative suitability prohibits a broker who controls an account from making excessive trades that are unsuitable even if each individual trade might be suitable.

When evaluating a customer's financial profile, which best describes 'liquidity needs'?

Answer: The ease with which the customer can convert investments to cash without loss

Liquidity needs refer to how readily a customer may need to access funds, affecting which investments are appropriate.

A customer states she has a 'moderate' risk profile but her portfolio consists entirely of speculative penny stocks. What must a registered representative do?

Answer: Reassess suitability and discuss the inconsistency with the customer

A registered representative must identify and discuss discrepancies between stated risk tolerance and actual holdings to ensure suitability.

In evaluating whether an annuity recommendation is suitable under FINRA guidance, which of the following must be specifically considered?

Answer: Whether the customer has other retirement assets outside the annuity

FINRA guidance on annuity suitability requires evaluating a customer's entire financial picture, including other retirement assets, to avoid over-concentration.

Which of the following best describes the 'customer-specific' component of suitability under FINRA Rule 2111?

Answer: The recommendation must be suitable based on that particular customer's investment profile

Customer-specific suitability requires that a recommendation be appropriate for that individual customer's unique investment profile, not just investors generally.

A broker recommends a high-yield bond fund to an 80-year-old widow living on a fixed income with no other investments. Which suitability element is most likely violated?

Answer: Customer-specific suitability

Customer-specific suitability is violated because the high-risk, volatile nature of high-yield bonds is inconsistent with the client's age, income dependency, and lack of other assets.