FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProfessional Conduct and Ethical ConsiderationsHard
A client expresses concern to their registered representative that they are unable to understand the complex terms and risks associated with a new variable annuity product the representative is recommending. The representative assures the client that 'it's a great product, trust me,' and encourages them to sign the application. Which ethical principle is the representative most clearly violating?
- ATransparency
- BDue Diligence
- CFair Pricing
- DFiduciary Duty
Show answer & explanationAnswer & explanation
Correct answer: A. Transparency
While elements of fiduciary duty and due diligence are present, the most direct violation here is a lack of transparency. The representative is failing to clearly explain the product's complexities and risks, opting instead for a non-transparent reassurance.
Why the other options are wrong
- B. Due diligence is the representative's responsibility to understand the product, not necessarily to explain it to the client.
- C. Fair pricing relates to the cost of the product, not the explanation of its terms.
- D. Fiduciary duty is a broader concept, but the specific failure here is the lack of clear explanation.
Transparency in Disclosure
The ethical principle requiring clear, complete, and understandable disclosure of all material facts, risks, and costs associated with an investment product or service to a client.
- Crucial for informed client decision-making.
- Goes beyond simply providing documents; requires active explanation.
- Failure to be transparent can lead to suitability violations.
Memory trick: Disclosure must be like a crystal ball: clear and showing all.