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← Series 63: Regulation of Broker-Dealers & Agents
Series 63 practice questioneasyFee-based vs commission-based compensation

An agent at a broker-dealer recommends a fee-based account to a client who trades very infrequently. Which of the following best describes this situation?

  1. AA potential conflict of interest due to unsuitable fee structure✓ Correct answer
  2. BA proper recommendation as fee-based accounts are always better for clients
  3. CA violation of the Uniform Securities Act's registration requirements
  4. DPermissible if the agent discloses all commissions
Explanation

Why A — A potential conflict of interest due to unsuitable fee structure

Recommending a fee-based account to a low-activity client is often unsuitable and may violate fiduciary standards under Sections 402 and 404 of the USA, as fees may exceed commissions over time. B is false; C and D miss the core issue, which is suitability.

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