Chapter 4 Part 2 Flashcards
Agents should always have
reasonable grounds for recommending a particular security ensuring that the recommendation is appropriate, given the information obtained from the client, such as financial status, needs, objectives, and ability to assume risk
In making recommendations to a client, an agent may NOT
recommend transactions that are excessive in size in relation to the client’s financial resources, omit details relating to the risks of a transaction, Engage in churning a client’s account
Commingling is the practice of
intermixing securities belonging to customers with those belonging to the broker-dealer
Client securities retained by the broker-dealer must be
segregated (kept separate) from the securities owned by the broker-dealer
In order to avoid possible commingling, securities can be registered in
a client’s name and sent directly to the client, or the securities may be held in safekeeping by the broker-dealer, for which the firm may charge a reasonable fee
Conversion occurs when an agent
illegally takes possession of a client’s assets for his own personal use
If an agent of a broker-dealer inadvertently receives a client’s cash or securities, the assets must be
deposited promptly with a qualified custodian or returned to the customer
Agents inadvertently holding cash or securities for a period greater than
three days arc considered to have custody of the funds
Generally, an agent may not share in the
profits or losses in a customer’s account. This is allowed only in a joint account where the agent is one of the owners of the account
In order for an agent to share an account with a client and share in the profits or losses in the account, the following conditions must be met
“The sharing arrangement must be approved by the customer; The sharing arrangement must be approved by the agent’s broker-dealer; The sharing of profits and losses must be proportionate based on the funds invested by each
party.”
Agents must be aware of the language used when making recommendations to clients. Using definitive words such as
always, only, will, guarantee, and never may he problematic when making statements to clients
Agents must also be careful not to use the term
“guarantee when referring to profits resulting from a
securities transaction. They are prohibited from guaranteeing clients a minimum rate of return or a specific dollar profit on an investment. If a client loses money on an investment, agents are prohibited from reimbursing a client for any portion of those losses”
Upon receipt of a written complaint, agents must
inform their supervisor. It is a violation of the USA to ignore the complaint
Broker-dealers are required to respond to
all customer written complaints and must maintain a file with a copy of all complaints
No person, including an agent, may participate in any form of
manipulation or any transaction that gives a misleading appearance of active trading in a security
