Discuss Finra Series-6 Exam Topic 2 Question 118

Your client, Mr. Whiff, knows nothing about investment companies, and you are educating him about the advantages of investing through one, rather than investing in individual stocks and bonds.

Which of the following statements could get you in trouble?

A''In investing through an investment company you will be able to invest a small amount of money and achieve greater diversification than you could otherwise.''

B''Investing through an investment company will result in a lower tax bill than had you invested in individual stocks and bonds.''

C''An investment in an investment company gives you an undivided interest in the company, in proportion to the number of shares you own.''

D''By investing your money through an investment company, you are getting the benefit of professional management.'

Suggested Answer: B

The statement that could get you in trouble is, ''Investing through an investment company will result in a lower tax bill than had you invested in individual stocks and bonds.'' Improved tax planning is not a benefit of investing through an investment company since the fund's manager cannot make investment decisions based on the tax status of each of the fund's shareholders. An investor who actively manages his own portfolio is better able to lower his tax bill.

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15 comments · newest first

Flo 2 months ago

D is solid. Professional management is a huge benefit!

Melvin 2 months ago

C seems fine too. Just a matter of shares owned.

Leonie 2 months ago

True, but B is risky. Misleading info can hurt clients.

Cecil 2 months ago

Option A sounds safe. Diversification is a big plus!

Lonna 3 months ago

Agreed! Tax implications vary. Not guaranteed lower taxes.

Carlton 3 months ago

I think option B could get you in trouble. It's misleading.

Chanel 3 months ago

Wait, can you really guarantee lower taxes?

Leontine 3 months ago

D) Totally agree, pros manage it for you!

Maurine 3 months ago

C) Sounds right, you own a piece of it!

Maile 3 months ago

B) Not necessarily, tax benefits vary.

Corinne 4 months ago

A) is true, you can diversify with less cash!

Fatima 4 months ago

D makes sense since professional management is a big selling point, but I wonder if there are exceptions.

Edward 4 months ago

C sounds correct to me, but I vaguely recall something about how ownership works in these companies.

Roosevelt 4 months ago

I’m not sure about B. I think there are tax implications with investment companies that could be misleading.

Shasta 4 months ago

I remember we discussed how diversification is a key advantage of investment companies, so A seems safe.

Finra Series-6 Exam - Topic 2 Question 118 Discussion