A client instructs their registered representative to purchase 500 shares of a highly speculative penny stock, despite the representative's advice that it does not align with the client's conservative investment objectives. The client insists on placing the order. What should the representative do?
- ARefuse to execute the order as it is unsuitable.
- BExecute the order but inform the client that the firm is not responsible for losses.
- CAttempt to convince the client to invest in a more suitable, diversified portfolio.
- DExecute the order as an unsolicited trade, documenting the client's insistence.
Show answer & explanationAnswer & explanation
Correct answer: D. Execute the order as an unsolicited trade, documenting the client's insistence.
If a client insists on placing an order that the registered representative deems unsuitable, the representative must execute the order as an unsolicited trade, provided it is not illegal or fraudulent. It is crucial to document that the trade was unsolicited and that the client was advised of the unsuitability but insisted on proceeding. Refusing an unsolicited order is generally not permitted unless it's illegal or fraudulent.
Why the other options are wrong
- A. While the trade is unsuitable, a representative generally cannot refuse an unsolicited order unless it is illegal or fraudulent. Documenting is key.
- B. While true, simply stating the firm is not responsible is insufficient. Proper documentation of the unsolicited nature and suitability discussion is required.
- C. The representative should have already provided advice regarding suitability. If the client insists, the next step is execution with proper documentation, not further attempts at persuasion.
Unsolicited Orders
An order initiated by the customer without any recommendation or prompting from the registered representative. While suitability rules apply to recommendations, unsolicited orders from a client must generally be executed unless they are illegal or fraudulent.
- Initiated by the client, not the representative.
- Must be executed if not illegal or fraudulent.
- Representative should document that the order was unsolicited.
- Suitability still considered, but client's decision prevails.
Memory trick: Unsolicited: 'U'nderstand, 'N'ote, 'S'ubmit.