FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProfessional Conduct and Ethical ConsiderationsHard
A registered representative learns that their firm is experiencing significant financial difficulties and might be facing bankruptcy. The representative, without informing clients, advises several clients to transfer their accounts to a different firm where the representative also secretly plans to move. This action is most accurately described as:
- AFront-running
- BBreach of Fiduciary Duty
- CWhistleblowing
- DChurning
Show answer & explanationAnswer & explanation
Correct answer: B. Breach of Fiduciary Duty
By advising clients to move their accounts without full disclosure of the firm's financial difficulties or the representative's personal plans to move, the representative is acting in their own self-interest rather than the clients' best interest, which is a breach of fiduciary duty.
Why the other options are wrong
- A. Front-running involves trading on advance knowledge of a client's large order, which is not the scenario here.
- C. Whistleblowing involves reporting misconduct internally or externally, not advising clients based on undisclosed personal plans.
- D. Churning involves excessive trading to generate commissions, not moving accounts between firms.
Breach of Fiduciary Duty (Self-Interest)
Occurs when an individual in a position of trust (fiduciary) acts in their own self-interest, or the interest of a third party, rather than solely in the best interest of the client.
- Requires placing client's interests first.
- Must avoid conflicts of interest or disclose them fully.
- Involves acting with utmost good faith and loyalty.
Memory trick: Fiduciary duty is a loyal vow; breaking it means profits for me, woe for you.