Snapshots Chapter 3: Trade Practices Flashcards
What information should be obtained from the client to determine an investment’s suitability for that particular customer?
Information regarding the customer’s financial condition, investment objective, tolerance for risk, and investment experience.
What types of actions would violate the Suitability Rule?
Engaging in transactions solely to generate commissions, failing to disclose important facts concerning the risks of an investment, recommending a security without having a reasonable basis for the recommendation, and performing trades that are excessive in size in relation to the customer’s resources.
What are some prohibitive activities in regard to the money in a client’s account?
Borrowing money or securities from a client or from a client’s account, or exercising discretion in a customer’s account without written authorization from the customer.
What is the “Prudent Man Rule”?
The rules rates “to observe how persons or prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.”
What two categories of fraudulent violations are listed int he Uniform Securities Act?
Fraud in the sale and purchases of securities; and in investment advisory practices.
What facts must an agent give to a client about a potential investment?
All known facts that would be essential for the client to make an informed and knowledgeable decision about the investment.
When are claims regarding past performance allowed to be used as a performance guarantee?
When they are verifiable with historical performance data and are accompanied by the basis for the performance calculation and a statement explaining that past performance is no guarantee of future results.
With regard to inside information, what is a violation of the Uniform Securities Act for an agent to do?
Effect any securities transaction based on inside information, make recommendations to buy or sell based on inside information, or transmit such information to someone who might trade a security based on that information.
What information should be obtained form the client to determine an investment’s suitability for that particular customer?
Information regarding the customer’s financial condition, investment objective, tolerance for risk, and investment experience.
What type sod actions would violate the suitability rule?
Engaging in transactions solely to generate commissions, failing to disclose important facts concerning the risks of an investment, recommending a security without having a reasonable basis for the recommendation, and performing trades that are excessive in size in relation to the customer’s resources.
