In which scenario would a registered representative’s ethical conduct be questioned?

In which scenario would a registered representative’s ethical conduct be questioned?

• A. Making excessive trades for commissions
• B. Providing accurate client information
• C. Recommending products based on performance data
• D. Encouraging a client to diversify their portfolio

Answer: (A)

Making excessive trades for commissions raises significant ethical concerns because it can indicate that a registered representative is prioritizing their own financial gain over the best interests of their clients. This practice, often referred to as "churning," involves a representative making unnecessary trades in a client's account to generate higher commissions. Such behavior can result in increased costs for the client and potential financial harm, which directly contradicts the fiduciary duty to act in the client’s best interest. Regulatory bodies monitor trading activity for signs of excessive trading, and representatives found engaging in such conduct can face disciplinary actions. In contrast, providing accurate client information, recommending products based on performance data, and encouraging diversification are typically seen as responsible practices that align with a representative’s duty to their clients, as these actions promote informed decision-making and financial security.

Making excessive trades for commissions raises significant ethical concerns because it can indicate that a registered representative is prioritizing their own financial gain over the best interests of their clients. This practice, often referred to as "churning," involves a representative making unnecessary trades in a client's account to generate higher commissions. Such behavior can result in increased costs for the client and potential financial harm, which directly contradicts the fiduciary duty to act in the client’s best interest. Regulatory bodies monitor trading activity for signs of excessive trading, and representatives found engaging in such conduct can face disciplinary actions.

In contrast, providing accurate client information, recommending products based on performance data, and encouraging diversification are typically seen as responsible practices that align with a representative’s duty to their clients, as these actions promote informed decision-making and financial security.