NASAA Series 63Ethical Practices and ObligationsMedium
A client has a non-discretionary brokerage account. The client instructs their agent to purchase 100 shares of XYZ Corp. at a limit price of $50.00. The agent, believing XYZ Corp. will drop further, decides to wait to place the order, hoping to get a better price for the client. The stock then unexpectedly rises to $55.00, and the agent is unable to fill the order at or below the client's specified limit. Which ethical violation has occurred?
- AUnauthorized Trading
- BChurning
- CMarket Manipulation
- DFailure to Follow Instructions
Show answer & explanationAnswer & explanation
Correct answer: D. Failure to Follow Instructions
In a non-discretionary account, the agent must execute client instructions exactly as given. By delaying the order based on their own judgment, the agent failed to follow the client's explicit instructions, even if their intention was to benefit the client.
Why the other options are wrong
- A. Unauthorized trading involves executing trades without client permission.
- B. Churning involves excessive trading for commissions.
- C. Market manipulation involves artificially influencing security prices.
Failure to Follow Instructions
An ethical and regulatory violation where an agent or investment adviser does not execute a client's explicit and lawful instructions regarding their account or investments.
- Applies to non-discretionary accounts.
- Even if intended to benefit the client, deviation is a violation.
- Instructions must be clear and lawful.
Memory trick: Hear the client, obey the instruction, no personal detours.