FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsMedium
A registered representative receives a request from an existing client to transfer their entire account from another firm. The client also indicates that their investment objectives have shifted from moderate growth to aggressive growth. Which of the following actions should the registered representative prioritize immediately after receiving the transfer request?
- AExecute the account transfer request to expedite the process.
- BSuggest new aggressive growth investment products to the client.
- CUpdate the client's investment objectives and risk tolerance on file.
- DInform the client about potential transfer fees from their current firm.
Show answer & explanationAnswer & explanation
Correct answer: C. Update the client's investment objectives and risk tolerance on file.
Before making any recommendations or even fully processing a transfer that might involve new investments, the registered representative has an obligation to ensure the client's information, especially their investment objectives and risk tolerance, is current and accurate. This updated information is critical for suitability assessments.
Why the other options are wrong
- A. Executing the transfer without updating objectives could lead to unsuitable recommendations or holding unsuitable assets.
- B. Suggesting new products before updating the client's profile is premature and could lead to unsuitable recommendations based on outdated information.
- D. While important, discussing transfer fees is secondary to ensuring the client's profile is accurate for suitability purposes, especially given the stated change in objectives.
Ongoing Suitability Obligation
Registered representatives have an ongoing obligation to ensure that recommended transactions and investment strategies remain suitable for a customer based on their current financial situation, investment objectives, and risk tolerance.
- Customer information must be kept current
- Suitability is an ongoing process, not a one-time event
- Changes in customer's life events or financial situation require review
- Recommendations must align with current profile
Memory trick: Suitability is a Continuous REFRESH, not a one-time SNAPSHOT.