FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationRegulatory Fundamentals and General Product KnowledgeHard
A registered representative receives an order from a client to purchase shares of a specific mutual fund. The client explicitly states they do not want to receive a prospectus prior to the transaction. What is the representative's obligation in this scenario?
- AInform the client that a prospectus must be delivered at or before the confirmation of sale.
- BExecute the order as requested, as the client waived their right to a prospectus.
- CDecline the order, as a prospectus must always be delivered prior to any purchase.
- DProvide an oral summary of the prospectus and then execute the order.
Show answer & explanationAnswer & explanation
Correct answer: A. Inform the client that a prospectus must be delivered at or before the confirmation of sale.
Under the Securities Act of 1933, a prospectus must be delivered to a purchaser of a new issue, which includes mutual funds, at or before the confirmation of sale. A client cannot waive this requirement; it is a regulatory obligation of the issuer and seller.
Why the other options are wrong
- B. A client cannot waive the prospectus delivery requirement.
- C. While often delivered prior, the regulatory requirement is 'at or before' confirmation, not necessarily prior to the order itself.
- D. An oral summary is not a substitute for the statutory prospectus.
Prospectus Delivery Requirement
The legal obligation to provide a prospectus to investors when offering certain securities, including mutual funds.
- Required for new issues under the Securities Act of 1933.
- Must be delivered at or before the confirmation of sale.
- Applies to mutual funds, variable annuities, and other new offerings.
- Cannot be waived by the client.
Memory trick: Prospectus delivery: 'At or before' the 'confirm' is the law.