Series 7 practice questionmediumCustomer Profiles — Quantitative Suitability
A registered representative executes 47 trades in a customer's account over a two-month period, generating $12,000 in commissions on a $50,000 account. This activity most likely raises concerns about:
- AFront-running
- BInsider trading
- CChurning (excessive trading)✓ Correct answer
- DFree-riding
Explanation
Why C — Churning (excessive trading)
Quantitative suitability, the third obligation under FINRA Rule 2111, requires that a series of recommended transactions, even if individually suitable, are not excessive when taken together. Churning occurs when a representative excessively trades an account primarily to generate commissions, which is evidenced by a high turnover rate and cost-to-equity ratio.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 755+ Series 7 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Related Opens & Maintains Customer Accounts questions
- Which of the following factors is LEAST relevant when assessing a customer's risk tolerance?
- Reasonable-basis suitability requires that a registered representative:
- A long-standing customer informs her representative that she has just retired and wants to change her investment…
- A 72-year-old retired widow with limited savings and a conservative risk tolerance asks her broker to invest her entire…