NASAA Series 63Ethical Practices and ObligationsMedium
A registered agent receives an unsolicited order from a new client to purchase shares of a highly speculative penny stock. The agent has not yet gathered sufficient financial information about the client to determine the suitability of such an investment. What is the agent's most appropriate action?
- AInform the client that the order cannot be executed until a suitability determination can be made.
- BSuggest a less speculative, more diversified investment option to the client before executing the order.
- CExecute the order immediately, as it is unsolicited, and suitability is not a factor for unsolicited trades.
- DExecute the order but issue a strong written warning to the client about the risks involved.
Show answer & explanationAnswer & explanation
Correct answer: A. Inform the client that the order cannot be executed until a suitability determination can be made.
Even for unsolicited orders, an agent has an obligation to gather sufficient information to determine if the investment is suitable for the client. If suitability cannot be determined, the order should not be executed.
Why the other options are wrong
- B. Suggesting alternatives is not appropriate until the agent understands the client's financial situation and objectives.
- C. Suitability is still a factor even for unsolicited trades, especially when the agent lacks client information.
- D. Issuing a warning is insufficient if suitability has not been established; the order should not be executed.
Unsolicited Order Suitability
Even when a client initiates an order (unsolicited), the agent must still have a reasonable basis to believe the investment is suitable for the client, especially if client information is incomplete.
- Applies to all orders, solicited or unsolicited.
- Agent must gather sufficient client information.
- Order execution requires a suitability determination.
Memory trick: Unsolicited doesn't mean 'unsuitable' is okay.