A 72-year-old retired widow with limited savings and a conservative risk tolerance asks her broker to invest her entire portfolio in high-yield (junk) bonds. What should the registered representative do?

AExecute the trade immediately since the customer requested it
BRefuse the trade outright and close the account
CInform the customer that the investment may not be suitable, document the discussion, and if the customer insists, consult with a supervisor✓ Correct answer
DExecute the trade but charge a higher commission to compensate for the risk

Explanation

Why C — Inform the customer that the investment may not be suitable, document the discussion, and if the customer insists, consult with a supervisor

When a customer requests an investment that appears unsuitable based on their profile, the representative must inform them of the risks and document the conversation. Under FINRA Rule 2111, the rep has a suitability obligation. If the customer insists, the representative should escalate to a supervisor rather than simply executing or refusing the trade.

Turn it into reps

Reading one answer is not the same as being ready

Lucky the Banker is a free practice app with 758+ Series 7 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.

Practice Series 7 free Series 7 exam guide

Spot an error in this question or explanation? Tell us — we fix these fast.

Related Opens & Maintains Customer Accounts questions