Professional Development & Standards Flashcards
7 cards from real Series 66 – Uniform Combined 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 7 Professional Development & Standards flashcards as text
An agent places frequent trades in a client's discretionary account, mainly to generate commissions and with little regard for the client's objectives. This is best described as:
Answer: Churning
Churning is excessive trading in a customer's account to generate commissions, judged by the trading's size and frequency relative to the client's objectives.
Which of the following is considered a dishonest or unethical practice for an investment adviser?
Answer: Recommending a security without reasonable grounds to believe it is suitable
Recommending securities without a reasonable basis for suitability violates the standards in the NASAA unethical practices rules.
An agent learns of a large customer buy order and buys the same stock for their own account first. This practice is called:
Answer: Front running
Trading ahead of a customer order to benefit from the expected price move is front running, a prohibited practice.
Which statement to a client is prohibited?
Answer: "I guarantee you will not lose money on this investment."
Guaranteeing a client against loss or promising a specific result is a prohibited and misleading practice.
An agent may share in the profits or losses of a customer's account only if:
Answer: The agent's share is proportional to their financial contribution, with written authorization from the firm and the customer
Profit/loss sharing requires prior written approval by firm and customer, and the agent's share must be proportional to their capital contribution.
An agent sells securities to a client that are not offered through, or recorded on the books of, the agent's employing broker-dealer. This violation is known as:
Answer: Selling away
Selling away is effecting securities transactions outside the firm's knowledge and records, bypassing supervision.
Which of the following borrowing arrangements by an agent is most likely to be a prohibited practice?
Answer: Borrowing money from an elderly retail customer without the firm's written consent
Borrowing from a retail customer is generally prohibited unless the customer is a lending institution or the firm's written policies permit it.
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