Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesEasy
Which of the following is considered a prohibited activity for a registered representative?
- ARecommending suitable investments based on a client's risk tolerance.
- BSharing in the profits and losses of a customer account without written permission and proportionate investment.
- CAccepting a commission for executing a trade.
- DExecuting unsolicited customer orders.
Show answer & explanationAnswer & explanation
Correct answer: B. Sharing in the profits and losses of a customer account without written permission and proportionate investment.
Sharing in the profits and losses of a customer's account is generally prohibited unless specific conditions are met, including written permission from both the client and the firm, and the representative's share is proportionate to their financial contribution.
Why the other options are wrong
- A. Recommending suitable investments is a core responsibility of a registered representative.
- C. Receiving commissions for executed trades is a standard form of compensation for registered representatives.
- D. Executing unsolicited orders is a legitimate function of a registered representative.
Sharing in Accounts
A prohibited practice where a registered representative shares in the profits or losses of a customer's account. Permitted only under strict conditions: written consent from client and firm, and proportionate investment by the rep.
- Requires written consent from client and firm.
- Representative's share must be proportionate to their investment.
- Applies to profits and losses.
Memory trick: Don't 'share' the accounts or 'churn' the trades.