FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsMedium
A client, age 30, is opening a new investment account. They provide their name, address, date of birth, and Social Security Number. When asked about their investment objectives, risk tolerance, and financial situation, the client states they do not wish to provide that information as they prefer to make their own investment decisions. What is the registered representative's MOST appropriate action?
- AOpen the account, but obtain a signed waiver from the client acknowledging their refusal to provide suitability information.
- BRefuse to open the account because essential suitability information is missing, which prevents making appropriate recommendations.
- COpen the account as requested, noting the client's refusal to provide suitability information, and only accept unsolicited orders.
- DOpen the account and only recommend investments generally suitable for someone of their age and basic demographic profile.
Show answer & explanationAnswer & explanation
Correct answer: C. Open the account as requested, noting the client's refusal to provide suitability information, and only accept unsolicited orders.
FINRA rules require that a firm make a reasonable effort to obtain suitability information. If a client refuses to provide it, the firm can still open a cash account, but the representative is prohibited from making recommendations. Only unsolicited orders can be accepted.
Why the other options are wrong
- A. Waivers do not absolve the firm or representative of their suitability obligations if recommendations are made. If no recommendations are made, a waiver is not required.
- B. Refusing to open the account is not necessary; the account can be opened, but the scope of services will be limited.
- D. Making recommendations based solely on age and demographic profile without full suitability information is a violation of suitability rules.
Client Refusal of Suitability Info
If a client refuses to provide essential suitability information during account opening, a firm can still open a cash account, but the registered representative is prohibited from making any recommendations.
- Account can be opened.
- No recommendations can be made by the representative.
- Only unsolicited orders are permissible.
Memory trick: Refusing suitability info means no recommendations, just bare-bones account access.