A registered representative is asked by an elderly client to be named as a beneficiary on their will. The client has no close family and trusts the representative implicitly. What is the most appropriate course of action for the representative?
- ASuggest the client name the brokerage firm as a beneficiary instead, to avoid conflicts of interest.
- BAccept the offer, as it demonstrates the client's trust and goodwill.
- CAccept the offer, but only after disclosing it to the firm's compliance department for approval.
- DPolitely decline the offer and explain that firm policy and FINRA rules prohibit such arrangements.
Show answer & explanationAnswer & explanation
Correct answer: D. Politely decline the offer and explain that firm policy and FINRA rules prohibit such arrangements.
FINRA rules generally prohibit registered representatives from being named as beneficiaries of a client's will or trust, especially when there's an investment advisory relationship. This is to prevent conflicts of interest and the appearance of undue influence over vulnerable clients. The representative must politely decline the offer and explain the prohibition.
Why the other options are wrong
- A. Suggesting the firm as a beneficiary is also inappropriate and does not resolve the underlying conflict of interest issue.
- B. Accepting such an offer creates a severe conflict of interest and violates FINRA rules.
- C. Even with disclosure, such an arrangement is typically prohibited unless the representative is a family member, due to the inherent conflict of interest.
Beneficiary Designations (RR)
Registered representatives are generally prohibited from being named as beneficiaries on a client's will, trust, or other estate planning documents, unless they are a family member.
- Aims to prevent undue influence and conflicts of interest.
- FINRA Rule 2010 (Standards of Commercial Honor) covers this.
- Applies even if the client has no other family.
- Requires polite but firm refusal.
Memory trick: A rep as a heir, is a conflict to bear; decline with a smile, and show you care.