Communications with Clients and Ethical Practices Flashcards
6 cards from real Series 63 – Uniform Securities Agent State Law Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Communications with Clients and Ethical Practices flashcards as text
Under the USA, what is required when an agent makes an investment recommendation to a client?
Answer: That the agent have a reasonable basis for believing the recommendation is suitable for that specific client given their financial situation and objectives
The suitability requirement mandates that agents have a reasonable basis to believe a recommendation is appropriate for the specific client based on their individual circumstances.
Under the USA, when must a customer receive a prospectus for a registered securities offering?
Answer: No later than the time of the first sale or delivery of the securities
A prospectus must be delivered to customers no later than the time of the first sale or delivery of the registered securities.
What is the 'know your customer' (KYC) rule and why is it important under the USA?
Answer: A standard requiring agents to gather sufficient information about clients to make suitable recommendations and understand their investment profile
KYC requires agents to gather information about clients' financial situation, investment objectives, and risk tolerance to make suitable recommendations and avoid fraud.
Under the USA, testimonials used in investment adviser advertising must follow what restriction?
Answer: Testimonials that imply past client performance will be repeated are misleading and prohibited
Testimonials in investment adviser advertising that imply past performance or client success will be replicated are considered misleading and are prohibited.
Under the USA, what information must be included in every sales communication sent by a registered agent?
Answer: The name of the broker-dealer or investment adviser the agent represents
Sales communications must clearly identify the broker-dealer or investment adviser firm that the agent represents so clients know who they are dealing with.
Under the USA, which of the following is a prohibited sales practice known as 'switching'?
Answer: Recommending unnecessary exchanges of mutual funds primarily to generate commissions for the agent
Switching refers to recommending unnecessary exchanges of mutual funds or other securities primarily to generate new sales charges and commissions, which harms clients.
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