FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProfessional Conduct and Ethical ConsiderationsMedium
A registered representative learns that a competitor is spreading false rumors about their firm's financial stability to poach clients. What is the most appropriate action for the representative to take?
- AIgnore the rumors, as clients will eventually see they are untrue.
- BContact the competitor directly and demand they cease the false statements.
- CInform their supervisor and the firm's compliance department immediately.
- DStart spreading positive rumors about their own firm to counteract the negativity.
Show answer & explanationAnswer & explanation
Correct answer: C. Inform their supervisor and the firm's compliance department immediately.
Spreading false rumors about a competitor's financial stability is a prohibited practice (FINRA Rule 2010 - Standards of Commercial Honor and Principles of Trade). When a representative becomes aware of such activity, they have an ethical and regulatory obligation to report it to their firm's supervisor and compliance department for proper investigation and action.
Why the other options are wrong
- A. Ignoring such serious allegations could allow harm to the firm and its clients, and is a failure of ethical duty.
- B. Directly confronting a competitor could escalate the situation inappropriately and bypass internal firm procedures.
- D. Spreading any rumors, even positive ones, is generally unprofessional and could be seen as market manipulation or a violation itself.
Prohibited Practices - Misrepresentation
It is a prohibited practice to make false or misleading statements, or to omit material facts, about any security, firm, or person, including competitors.
- Includes spreading false rumors or engaging in defamation.
- Violates FINRA Rule 2010 (Standards of Commercial Honor).
- Requires immediate reporting to supervisors and compliance.
Memory trick: When rivals play dirty, don't fight fire with fire; report it to compliance, and let them inquire.