FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsMedium
A client is opening a new account and expresses a strong interest in investing in a mutual fund with a specific objective. Before recommending any fund, the registered representative must provide the client with the fund's current prospectus. According to FINRA rules, when must the prospectus be delivered?
- AAt or before the time of sale
- BWhen the client receives their first account statement
- CUpon request from the client, but no later than settlement
- DWithin 24 hours of the first trade execution
Show answer & explanationAnswer & explanation
Correct answer: A. At or before the time of sale
FINRA rules, aligning with SEC regulations, require that a mutual fund prospectus be delivered to a customer at or before the time of sale (i.e., before the order is accepted and executed).
Why the other options are wrong
- B. Receiving the first account statement is well after the sale, which is non-compliant with prospectus delivery requirements.
- C. Waiting for a client request or settlement is too late, as the investment decision would have already been made.
- D. Delivery after execution is too late; the client must have the information to make an informed decision prior to the sale.
Mutual Fund Prospectus Delivery
The official document that provides detailed information about a mutual fund. FINRA and SEC rules mandate its delivery to investors at or before the time of sale.
- Contains fund's investment objectives, strategies, risks, fees, and performance.
- Must be delivered at or before the time of sale.
- Helps investors make informed decisions.
- Summary prospectuses are often provided first, with full prospectus available online/on request.
Memory trick: Prospectus ALWAYS before the PURCHASE: 'P're-sale 'P'rospectus 'P'olicy.