Series 7 practice questionmediumPackaged Products — Mutual Funds
A registered representative recommends that a client invest $48,000 in a mutual fund when the next breakpoint is at $50,000. This practice is known as:
- AChurning
- BFree-riding
- CFront-running
- DBreakpoint selling✓ Correct answer
Explanation
Why D — Breakpoint selling
Breakpoint selling occurs when a registered representative recommends a purchase amount just below a breakpoint level, causing the investor to miss a sales charge discount. FINRA considers this a violation of suitability rules. The representative should inform the client that investing an additional $2,000 would qualify for a lower sales charge.
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