Series 63 practice questionmediumChurning - Complex Fee Structures
A broker-dealer exercises control over a client's commission-based account and increases trading frequency primarily to generate commissions. Under the USA, this is:
- AProhibited churning, even with a different fee structure✓ Correct answer
- BOnly prohibited if excessive commissions result
- CNot prohibited if fees are disclosed
- DAcceptable if all trades are solicited
Explanation
Why A — Prohibited churning, even with a different fee structure
Excessive trading in a controlled account primarily to generate transaction compensation is churning. Disclosure or the fact that trades were solicited does not make excessive trading suitable or ethical.
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