Chapter 4 - Section 6 - Dishonest or Unethical Business Practices by BDs and Agents

Question 1

What must be disclosed to customers regarding sales charges?

Answer 1

All sales charges, including asset-based and contingent deferred sales charges, must be adequately disclosed to customers

Question 2

True or False: It is unethical to claim that shares are “no-load” or have “no sales charge” if there are associated fees such as a front-end load, contingent deferred sales load, or certain service fees.

Answer 2

True

Question 3

What must be disclosed about sales charge discounts?

Answer 3

Any available sales charge discounts, such as those for purchases at or above a breakpoint or through a letter of intent, must be disclosed to customers.

Question 4

What must be considered when recommending a specific class of investment company shares?

Answer 4

The recommendation must be suitable and appropriate based on the customer’s investment objectives, financial situation, and other securities holdings.

Question 5

To Determine the Suitability of an Investment, Consider the Customer’s:

Answer 5

• Investment objective
• Time Frame
• Risk Tolerance
• Age

Question 6

According to SEC regulations, when advertising a fund’s current yield or income, it is mandatory to also disclose the fund’s most recent average annual returns for the 1-, 5-, and 10-year periods, calculated using the SEC’s standardized formula. Additionally, the difference between current yield and total yield must be fully explained to avoid misleading investors.

Answer 6

True. May cause suspension of revocation.

Question 7

________ _____________ is an unethical practice where brokers encourage clients to buy shares of a dividend-paying company just before the dividend payment date.

Answer 7

Selling dividends. This is misleading because it implies that the dividend is “free income,” ignoring the fact that the stock price typically drops by the amount of the dividend after it is paid.

Question 8

True or False: In connection with the solicitation of investment company shares, the delivery of a prospectus in and of itself, shall not, by itself, determine that the broker-dealer or agent provided the customer full and fair disclosure.

Answer 8

True