Practice Quiz

FINRA Series 63 (NASAA)

Category - Series 63

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Desi Genuos is an agent with Broker-Dealer CanDo. A client has asked Desi to recommend a mutual fund that does not have a sales charge. Desi recommends a fund that has no front-
end load although it does have a deferred sales load if the investor redeems his shares within the first three years of ownership, but the client has informed Desi that he is looking at this as a long-term investment. Based on these facts, Desi
  1. is in violation of NASAA rules regarding investment company shares.
  2. is not in violation of any rules since the fund has no front-end load and the deferred sales load will not apply to this client, given his indication that this is meant to be a long-term investment.
  3. will not be in violation of any NASAA rules as long as he has his client sign a “letter of intent.”
  4. is not in violation of any rules because he is an agent of a broker-dealer and is not affiliated with the fund he has recommended in any manner.
Explanation
Answer: A - If Desi recommends a mutual fund that has a deferred sales load to a client who requests a mutual fund with no sales charge, he is in violation of NASAA rules regarding investment company shares. The NASAA rules specify that it is prohibited for an agent to state or imply that the investment has no sales charge if there is a deferred sales load involved. It doesn’t matter if, in fact, the deferred load may never have to be paid by the client. A letter of intent involves a statement of intent by the investor to invest an amount that will meet a breakpoint that will entitle him to a lower load charge. This is not pertinent to this specific question.
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