FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProfessional Conduct and Ethical ConsiderationsEasy
A registered representative (RR) is approached by a client who asks the RR to hold their physical stock certificates in the RR's personal office safe for safekeeping, as the client fears theft at their home. What is the RR's most appropriate action?
- AAccept the certificates but immediately transfer them to the brokerage firm's vault for safekeeping.
- BInform the client that the RR cannot hold client assets personally and advise the client to deposit the certificates with the brokerage firm or a bank.
- CAdvise the client to sell the physical certificates and invest in electronic shares to avoid theft.
- DAccept the certificates and store them securely in the personal office safe, providing the client with a receipt.
Show answer & explanationAnswer & explanation
Correct answer: B. Inform the client that the RR cannot hold client assets personally and advise the client to deposit the certificates with the brokerage firm or a bank.
FINRA rules strictly prohibit registered representatives from holding client assets, including physical securities, in their personal possession. This is to prevent commingling of funds and protect against theft, fraud, and misplacement.
Why the other options are wrong
- A. While transferring to the firm's vault is good, the initial acceptance into personal possession is still a violation.
- C. Advising to sell is not the primary appropriate action; the immediate concern is the safekeeping of existing assets.
- D. This is a prohibited practice, as RRs cannot hold client assets personally.
Holding Client Assets Prohibition
Registered representatives are strictly prohibited from taking physical possession of client assets, including cash, securities, or other valuables.
- Prevents commingling of funds.
- Protects against theft, fraud, and misplacement.
- All client assets must be held by the employing broker-dealer or an approved custodian.
- Applies even if the intent is to help the client.
Memory trick: Never hold client's cash or certificates, keep it firm and clear.