Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesEasy
Which of the following activities is NOT considered a prohibited practice for a registered representative?
- AExecuting trades for a client without written discretionary authority.
- BEngaging in excessive trading in a customer's account to generate commissions.
- CRecommending a diversified portfolio of mutual funds that aligns with a client's risk tolerance and investment objectives.
- DSharing in the profits or losses of a customer's account without written authorization and proportionate contribution.
Show answer & explanationAnswer & explanation
Correct answer: C. Recommending a diversified portfolio of mutual funds that aligns with a client's risk tolerance and investment objectives.
Recommending a diversified portfolio that aligns with a client's objectives is a fundamental duty of a registered representative and is not a prohibited practice. The other options describe prohibited activities such as unauthorized trading, improper profit sharing, and churning.
Why the other options are wrong
- A. This describes unauthorized trading, which is a prohibited practice.
- B. This describes churning, which is a prohibited practice.
- D. This describes improper profit/loss sharing, which is a prohibited practice.
Permitted Representative Activities
Registered representatives are expected to act in the best interest of their clients, providing suitable recommendations and executing authorized transactions.
- Provide suitable recommendations.
- Execute authorized orders.
- Maintain ethical conduct.
Memory trick: Always act in client's best, never your own gain unfairly.