FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProfessional Conduct and Ethical ConsiderationsMedium
A registered representative is developing marketing materials for a new variable annuity product. The materials highlight the product's high potential returns and gloss over the associated fees, surrender charges, and market risks. Which FINRA principle is primarily being violated?
- ASuitability
- BSupervisory Responsibilities
- CFair Dealing and Good Faith
- DDue Diligence
Show answer & explanationAnswer & explanation
Correct answer: C. Fair Dealing and Good Faith
FINRA's principle of Fair Dealing and Good Faith requires that all communications with the public be balanced, not misleading, and include all material information necessary for an informed decision. Omitting risks and fees while highlighting returns violates this principle.
Why the other options are wrong
- A. Suitability relates to recommending products appropriate for a client's specific needs, not the general marketing of a product.
- B. Supervisory Responsibilities relate to a principal's oversight of representatives, not the content of a representative's marketing material directly.
- D. Due Diligence relates to understanding the product and verifying information, not primarily how it's presented to the public.
Fair Dealing and Good Faith
The ethical principle requiring that all communications and interactions with clients be honest, transparent, and balanced, providing all material information without misrepresentation or omission.
- Applies to all communications, including marketing materials.
- Requires balanced presentation of benefits and risks.
- Prohibits misleading statements or omissions of material facts.
Memory trick: Truth in talk, balance in show, for fair dealing makes the client glow.