FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProfessional Conduct and Ethical ConsiderationsMedium
A registered representative is asked by a client to sign a document that acknowledges the client's understanding of the risks involved in a highly speculative investment. The representative has not thoroughly explained all the risks to the client, but signs the document anyway to complete the transaction quickly. This action constitutes a violation of which ethical standard?
- AConfidentiality
- BHonesty and Fair Dealing
- CDue Diligence
- DTimely Execution
Show answer & explanationAnswer & explanation
Correct answer: B. Honesty and Fair Dealing
Signing a document that falsely attests to the client's understanding, when the representative knows they haven't fully explained the risks, is a direct violation of honesty and fair dealing. It misrepresents the truth and acts against the client's best interest.
Why the other options are wrong
- A. Confidentiality relates to protecting client information, not the honesty of disclosures.
- C. Due diligence refers to the representative's research into the product, not their honesty in client interactions.
- D. Timely execution refers to processing orders promptly, not the honesty of disclosures.
Honesty & Fair Dealing (Disclosure)
The ethical principle requiring registered representatives to be truthful, transparent, and act in good faith with clients, especially regarding disclosures of risks and material facts.
- Prohibits misrepresentation or omission of material facts.
- Requires ensuring client comprehension, not just providing documents.
- Foundation of trust in the client-representative relationship.
Memory trick: Honesty is the best policy; fair dealing keeps you out of misery.