Series 63 practice questionmediumReasonable Basis for Recommendations
An agent is asked about a high-risk penny stock by a client. According to the USA, before recommending, the agent should:
- AResearch and understand the security’s risks and features✓ Correct answer
- BRely solely on the client’s interest
- CRecommend only if the firm has inventory
- DRecommend only if the client agrees in writing
Explanation
Why A — Research and understand the security’s risks and features
Agents must understand the product and its risks (reasonable basis suitability, USA Section 402) before recommending. Client demand, firm inventory, or written agreement do not substitute for this requirement.
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