FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProfessional Conduct and Ethical ConsiderationsMedium
A registered representative (RR) learns that a client's account statement contains a clerical error regarding the number of shares held in a mutual fund, resulting in an understated account value. The client has not noticed the error. What is the RR's primary ethical obligation in this situation?
- AOffer the client a compensatory payment for the inconvenience caused by the error.
- BImmediately report the error to the firm's operations department and inform the client of the discrepancy and correction.
- CWait for the client to discover the error and bring it to the RR's attention.
- DCorrect the error internally without notifying the client, as it was a clerical mistake.
Show answer & explanationAnswer & explanation
Correct answer: B. Immediately report the error to the firm's operations department and inform the client of the discrepancy and correction.
RRs have an ethical and regulatory obligation to ensure accuracy and transparency in client accounts. Upon discovering an error, the RR must promptly report it to the firm for correction and inform the client, even if the client hasn't noticed, to maintain trust and compliance.
Why the other options are wrong
- A. Compensatory payments are typically for actual losses due to misconduct, not for clerical errors that are promptly corrected before any loss occurs.
- C. This is unethical and potentially a violation of FINRA rules, as it involves withholding material information.
- D. Correcting internally is part of the process, but failure to inform the client is a breach of transparency and trust.
Account Error Correction
Registered representatives must promptly report and facilitate the correction of any errors discovered in client accounts. Transparency with the client is paramount, and they must be informed of the discrepancy and its resolution.
- Report errors immediately to firm operations.
- Inform client of the error and correction.
- Maintain accuracy and transparency.
- Upholds ethical conduct and trust.
Memory trick: Find an Error, Fix It Fast, Tell the Client, Make Trust Last.