Series 6 – Investment Company and Variable Contract Products Representation Qualification Exam Customer Accounts & Suitability 2 — Questions and Answers
Question 1: Under FINRA's suitability rule, a representative must have a reasonable basis to believe a recommended transaction is suitable based on all of the following EXCEPT:
- The customer's financial situation
- The customer's investment objectives
- The customer's tax status
- The competitor firm's commission rates (Correct answer)
Correct answer: The competitor firm's commission rates
Suitability is based on the customer's own profile — financial situation, objectives, risk tolerance, and tax status — not on competitor pricing or external market factors.
Question 2: Under Regulation Best Interest (Reg BI), broker-dealers must act in the best interest of retail customers. This standard is BEST described as:
- Recommending any product the customer is willing to purchase
- Recommending products only from the firm's preferred product list
- Placing the customer's interests above the firm's own financial interests when making recommendations (Correct answer)
- Disclosing all conflicts but still prioritizing profitable products
Correct answer: Placing the customer's interests above the firm's own financial interests when making recommendations
Reg BI requires broker-dealers to act in the retail customer's best interest at the time of recommendation, not favoring the firm's own financial interests.
Question 3: A customer tells their representative they have a low risk tolerance and need income for living expenses. The representative recommends an aggressive growth variable annuity. This recommendation is MOST likely a violation of:
- Anti-money laundering rules
- The suitability obligation (Correct answer)
- The prospectus delivery rule
- The margin account rule
Correct answer: The suitability obligation
Recommending an aggressive growth product to a customer who has stated low risk tolerance and income needs directly violates the suitability obligation.
Question 4: Which of the following investment objectives is MOST consistent with a retiree seeking to preserve capital and generate steady income?
- Aggressive growth
- Speculation
- Income and capital preservation (Correct answer)
- Maximum capital appreciation
Correct answer: Income and capital preservation
Income and capital preservation aligns with a retiree's need for steady cash flow and protection against loss of principal.
Question 5: Under FINRA's Customer Identification Program (CIP) requirements, broker-dealers must collect which minimum identifying information from individual customers?
- Name, date of birth, address, and taxpayer identification number (Correct answer)
- Name, Social Security number, employer name, and bank account number
- Name, address, net worth, and annual income
- Name, date of birth, investment objectives, and risk tolerance
Correct answer: Name, date of birth, address, and taxpayer identification number
CIP requires collecting name, date of birth, address, and a taxpayer identification number (such as SSN) from individual customers to verify identity.
Question 6: If a customer's financial situation materially changes after an account is opened, what is the representative's obligation?
- No action is required until the customer requests a change
- Update the customer's account information and review whether existing holdings remain suitable (Correct answer)
- Immediately liquidate all existing positions
- Transfer the account to a different representative
Correct answer: Update the customer's account information and review whether existing holdings remain suitable
Representatives must update customer profiles when material changes occur and reassess whether current holdings and recommendations remain suitable given the new circumstances.
Question 7: A customer who is classified as an 'accredited investor' under SEC rules typically meets which criterion?
- Annual income of at least $50,000 or net worth of $200,000
- Annual income of at least $200,000 (or $300,000 joint) or net worth over $1,000,000 excluding primary residence (Correct answer)
- Any customer with a brokerage account open for more than two years
- Any customer who has passed the Series 7 examination
Correct answer: Annual income of at least $200,000 (or $300,000 joint) or net worth over $1,000,000 excluding primary residence
An accredited investor is defined by the SEC as an individual with annual income exceeding $200,000 ($300,000 jointly) or a net worth exceeding $1,000,000 excluding their primary residence.
Series 6 – Investment Company and Variable Contract Products Representation Qualification Exam Customer Accounts & Suitability 2
Under FINRA's suitability rule, a representative must have a reasonable basis to believe a recommended transaction is suitable based on all of the following EXCEPT: