NASAA Series 63Communication with Customers and ProspectsEasy
An investment adviser representative (IAR) is preparing a seminar presentation for prospective clients. Which of the following statements, if included in the presentation, would most likely be considered a prohibited practice under the Uniform Securities Act?
- A“Investing involves risk, and you could lose money.”
- B“Past performance is not indicative of future results.”
- C“Our firm’s fees are clearly outlined in our Form ADV Part 2 brochure.”
- D“This investment strategy has consistently outperformed the market by 5% annually for the last decade; we guarantee similar returns for our clients.”
Show answer & explanationAnswer & explanation
Correct answer: D. “This investment strategy has consistently outperformed the market by 5% annually for the last decade; we guarantee similar returns for our clients.”
Guarantees of specific returns are strictly prohibited under the Uniform Securities Act because they are inherently misleading and create unreasonable expectations for investors. While past performance can be cited, it cannot be used to guarantee future results.
Why the other options are wrong
- A. This is a necessary disclosure regarding investment risks, not a prohibited practice.
- B. This is a standard and required disclosure, not a prohibited practice.
- C. Disclosing fees via Form ADV Part 2 is a regulatory requirement, not a prohibited practice.
Prohibited Performance Guarantees
Under the Uniform Securities Act, investment professionals are prohibited from guaranteeing specific returns or outcomes for investments. Such statements are considered misleading and fraudulent.
- Cannot guarantee specific returns.
- Cannot guarantee against loss.
- Must disclose risks.
- Past performance is not indicative of future results.
Memory trick: No guarantees, just good explanations, for what's prohibited in communication.