Series 63 practice questionhardImproper Use of Discretion and Compensation
An agent with discretion over a client’s account trades excessively to generate commissions, but always makes trades that align with the client's objectives. Under the USA, this practice is:
- AA violation due to churning, regardless of suitability✓ Correct answer
- BAcceptable if the client’s objectives are met
- CPermitted if disclosed in advance
- DAllowed if profits are generated
Explanation
Why A — A violation due to churning, regardless of suitability
Churning, or excessive trading for commissions, is prohibited under USA Section 402 even if trades are technically suitable or profitable. Disclosure does not negate the violation.
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