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← Series 63: Regulation of Broker-Dealers & Agents
Series 63 practice questionhardProhibited Practices — Scenario

Agent Priya opens a joint investment account with her customer, Mrs. Chen. Priya contributes 20% of the capital but negotiates a 50% share of any profits. Which violations, if any, has Priya committed?

  1. ANo violation, because both parties agreed to the arrangement
  2. BA violation only if the broker-dealer was not notified
  3. CA violation only if the account loses money
  4. DA violation for sharing in a customer's account disproportionate to her financial contribution✓ Correct answer
Explanation

Why D — A violation for sharing in a customer's account disproportionate to her financial contribution

Under NASAA model rules, an agent may share in profits and losses of a customer's account only with proper written authorization and only in proportion to the agent's financial contribution to the account. Priya contributed 20% of the capital but negotiated a 50% profit share, which is disproportionate. This arrangement is prohibited regardless of customer consent or broker-dealer notification.

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