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Exam Series 6 All Questions

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Exam Series 6 topic 1 question 243 discussion

Actual exam question from FINRA's Series 6
Question #: 243
Topic #: 1
[All Series 6 Questions]

Clem Shyster is a registered representative with a family of mutual funds. A married couple in their 50s sought his advice about how they should best invest an
$80,000 profit that they had received when they sold a rental property they owned for a number of years. Their investment profile indicated to Clem that their main investment objective was capital appreciation and that they were willing to accept moderate levels of risk. Clem advised them to invest $10,000 in eight different growth funds, each of which had a 7% front-end load.
Has Clem violated any securities laws with his recommendation?

  • A. No. Growth funds invest in stocks that are selected to provide the capital appreciation that Clems clients need, and an investment in eight such funds will provide them with maximum risk diversification.
  • B. Yes. Although growth funds provide some amount of capital appreciation, Clem should have recommended that they spread their money among eight different aggressive growth funds instead, to achieve even greater capital appreciation.
  • C. Yes. Clem should have advised them to invest in funds that had a deferred sales charge instead of a front-end load.
  • D. Yes. There is a lot of overlap of the individual stocks in which growth funds invest, so recommending that they spread their funds among eight different growth
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Suggested Answer: D 🗳️
Yes, Clem has violated securities laws with his recommendation that his clients spread their money among eight different load, growth funds because there is a lot of overlap in the individual stocks in which these funds invest, so this strategy has not provided them with significantly more diversification; it has just cost them more, which will benefit Clem since he gets to pocket part of that load fee himself. He has made an unsuitable recommendation and has not upheld
NASDs rules involving fair dealing with customers.
by lolojepu at April 6, 2025, 1:28 a.m.

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