FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProcessing Customer Orders and TransactionsMedium
A client places an order to purchase shares of a mutual fund. The registered representative must ensure that the client receives the fund's prospectus no later than which of the following times?
- AAt or prior to the initial solicitation.
- BAt or prior to the confirmation of sale.
- CWithin 24 hours of the purchase order.
- DAt the time of account opening.
Show answer & explanationAnswer & explanation
Correct answer: B. At or prior to the confirmation of sale.
FINRA rules and the Securities Act of 1933 require that a prospectus be delivered to a customer at or prior to the confirmation of sale for mutual funds and other new issues. This ensures the investor has access to complete information before the transaction is finalized.
Why the other options are wrong
- A. While it's good practice to provide it during solicitation, the legal requirement specifies 'at or prior to confirmation of sale'.
- C. This timeframe is too late; the prospectus must be provided at or before confirmation.
- D. While a prospectus may be provided at account opening, the regulatory requirement ties it to the sale confirmation, not account opening generally.
Prospectus Delivery Rule
A regulation requiring the delivery of a fund's prospectus to an investor at or prior to the confirmation of sale, providing essential information about the investment.
- Mandated by the Securities Act of 1933.
- Applies to mutual funds, variable annuities, and new issue securities.
- Ensures investors receive full disclosure before completing a purchase.
Memory trick: Prospectus Present, Before Payment's Sent.