FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsMedium
A client calls their registered representative stating they are unhappy with the performance of their variable annuity subaccounts and wants to make changes. They are particularly concerned about high fees impacting their returns. Which of the following actions should the registered representative take FIRST?
- AAdvise the client to surrender the variable annuity and invest in a low-cost ETF.
- BSuggest a 1035 exchange to a different variable annuity with lower fees.
- CReview the client's current investment objectives, risk tolerance, and time horizon.
- DImmediately process a reallocation request into lower-fee subaccounts.
Show answer & explanationAnswer & explanation
Correct answer: C. Review the client's current investment objectives, risk tolerance, and time horizon.
Before making any recommendations or changes, a registered representative must always re-evaluate the client's current financial situation, investment objectives, risk tolerance, and time horizon to ensure that any proposed action is suitable. This is a fundamental suitability obligation.
Why the other options are wrong
- A. Surrendering an annuity often incurs significant surrender charges and may not be in the client's best interest without a thorough suitability review.
- B. A 1035 exchange is a potential solution, but it should only be considered after a full suitability review to confirm it's in the client's best interest.
- D. Processing a reallocation without re-assessing suitability could lead to an inappropriate recommendation.
Ongoing Suitability Obligation
The broker-dealer and registered representative's continuing duty to ensure that all recommendations and transactions remain suitable for the customer's investment profile.
- Applies to new recommendations and existing holdings.
- Requires periodic review of customer information.
- Triggered by significant life events, market changes, or client concerns.
- Ensures investments continue to align with changing needs and goals.
Memory trick: Always review, always renew, client needs change, so should you.