A registered representative receives an order from a client that appears to be inconsistent with their stated investment objectives and risk tolerance. The client insists on executing the trade, acknowledging the representative's concerns. What is the MOST appropriate action for the registered representative?
- AExecute the order after obtaining a written statement from the client acknowledging the unsuitability.
- BRefuse to execute the order, as it is clearly unsuitable.
- CReport the client's insistence to FINRA as a potential violation.
- DExecute the order without further action, as the client insisted.
Show answer & explanationAnswer & explanation
Correct answer: A. Execute the order after obtaining a written statement from the client acknowledging the unsuitability.
If a client insists on placing an order that the registered representative believes is unsuitable, the representative generally must execute the order, provided it is not illegal or fraudulent. However, the representative must document their concerns and obtain a written acknowledgment from the client that they are proceeding against the representative's advice. This fulfills the firm's 'unsolicited trade' and 'not held' order requirements, and protects the firm and representative.
Why the other options are wrong
- B. Refusing to execute a client's legitimate, albeit unsuitable, order is generally not permitted unless it is illegal or fraudulent.
- C. Reporting to FINRA is not the appropriate first step for an unsolicited, unsuitable trade; proper documentation and execution are required.
- D. Executing without documentation leaves the representative and firm vulnerable to future claims of unsuitability.
Unsolicited Unsuitable Order
An order placed by a client that a registered representative believes is unsuitable for their investment profile, but the client insists on executing.
- RR must generally execute the order if it's not illegal or fraudulent.
- RR must document their concerns and obtain written acknowledgment from the client.
- This protects the RR and firm from future liability for unsuitability.
- The trade is typically marked as 'unsolicited' and 'not held'.
Memory trick: Client insists, document the risk, then proceed with a careful kiss.