Practice Quiz

FINRA Series 63 (NASAA)

Category - Series 63

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Cal Turner calls his client and recommends that the client sell his shares in the Alpha High Quality Bond Fund and use the proceeds to buy shares in the Omega High Quality Bond Fund. Cal has done nothing unethical if his recommendation is based on the fact that
  1. the Alpha Fund has a back-end load.
  2. the Omega Fund has a front-end load.
  3. the Alpha Fund has been performing poorly relative to other funds in the same category.
  4. It would always be unethical for Cal to recommend that a client sell shares in one fund in order to buy shares of another fund that has the same investment objective.
Explanation
Answer: C - Cal has done nothing unethical if his recommendation that a client sell his shares in the Alpha Fund and buy shares of the Omega Fund is due to the fact that the Alpha Fund has been performing poorly relative to other funds in the same category. While past performance is no guarantee of future performance, a client may not want to hang on to a fund that isn’t returning as much as its competition.
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