Finra Series-6 Exam - Topic 5 Question 94 Discussion

Actual exam question for Finra's Series-6 exam

Question #: 94
Topic #: 5

Clem Shyster is a registered representative with a family of mutual funds. A married couple in their 50s sought his advice about how they should best invest an $80,000 profit that they had received when they sold a rental property they owned for a number of years. Their investment profile indicated to Clem that their main investment objective was capital appreciation and that they were willing to accept moderate levels of risk. Clem advised them to invest $10,000 in eight different growth funds, each of which had a 7% front-end load.

Has Clem violated any securities laws with his recommendation?

ANo. Growth funds invest in stocks that are selected to provide the capital appreciation that Clem's clients need, and an investment in eight such funds will provide them with maximum risk diversification.

BYes. Although growth funds provide some amount of capital appreciation, Clem should have recommended that they spread their money among eight different aggressive growth funds instead, to achieve even greater capital appreciation.

CYes. Clem should have advised them to invest in funds that had a deferred sales charge instead of a front-end load.

DYes. There is a lot of overlap of the individual stocks in which growth funds invest, so recommending that they spread their funds among eight different growth funds has not provided them with significantly more diversification, and it has cost them more to do so, which will benefit Clem.

Show Suggested Answer

Suggested Answer: D

Upon receiving a complaint about one of its member firms, FINRA may require any person associated with the member firm to provide information and to testify under oath; it may inspect and copy the books, records, and accounts of the member firm; and it may share information obtained from its investigation of a member firm with a foreign regulatory agency. The foreign regulator must agree to treat the information confidentiality, and the agreement with the foreign regulator is predicated on two requirements: ''(A) the other regulator party to the agreement must have jurisdiction over common regulatory matters; and (B) the agreement must require the other regulator to reciprocate and share with FINRA information of regulatory interest or concern to FINRA.''

by Leota at Dec 04, 2024, 04:30 PM

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Pearline

3 months ago

Sounds like Clem's just looking out for his own commission.

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Moon

4 months ago

Eight growth funds might not diversify enough, though.

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Lenny

4 months ago

Wait, 7% front-end load? That seems high!

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Lashawn

4 months ago

I disagree, he should've suggested aggressive growth funds!

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Scarlet

4 months ago

Clem's advice seems solid for capital appreciation.

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Leota

4 months ago

I recall that overlapping stocks in multiple funds can reduce diversification, so I lean towards option D being correct. It seems like Clem might have missed that point.

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Dominic

5 months ago

I practiced a question similar to this where the focus was on fees. I feel like Clem could have done better with a deferred sales charge option.

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Pamela

5 months ago

I think Clem's recommendation might be okay since growth funds are meant for capital appreciation, but I wonder if the front-end load is a red flag.

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Kina

5 months ago

I remember discussing how diversification is important, but I'm not sure if investing in eight growth funds really provides enough unique exposure.

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Lizette

5 months ago

This is a good question to test our understanding of investment recommendations and securities laws. I'm going to carefully review the details and think through the potential issues before selecting an answer.

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Raina

5 months ago

I'm a bit confused by the diversification aspect. Doesn't investing in eight different growth funds provide more diversification than just one or two funds? I'm leaning towards A, but I'll need to double-check that.

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Kallie

5 months ago

Okay, I think I've got it. Clem should have recommended funds with a deferred sales charge instead of a front-end load, since that would be more cost-effective for the clients. I'm going with C on this one.

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Audry

5 months ago

Hmm, the key seems to be whether Clem's recommendation was appropriate given the clients' investment objectives and risk profile. I'll need to weigh the pros and cons of the different fund options.

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Solange

5 months ago

This seems like a tricky question. I'm not sure if Clem's recommendation violates any securities laws, but I'll need to think it through carefully.

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Sabine

11 months ago

Hmm, I don't know. Doesn't seem like the diversification benefit is worth the extra fees they're paying. Clem's just trying to line his own pockets if you ask me.

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Heike

9 months ago

Hmm, I don't know. Doesn't seem like the diversification benefit is worth the extra fees they're paying. Clem's just trying to line his own pockets if you ask me.

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Eladia

9 months ago

C) Yes. Clem should have advised them to invest in funds that had a deferred sales charge instead of a front-end load.

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Nieves

10 months ago

A) No. Growth funds invest in stocks that are selected to provide the capital appreciation that Clem's clients need, and an investment in eight such funds will provide them with maximum risk diversification.

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Asuncion

11 months ago

You know, I bet Clem gets a nice little commission on those front-end loads. Sneaky, sneaky!

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Lindsey

10 months ago

B) Yes. Although growth funds provide some amount of capital appreciation, Clem should have recommended that they spread their money among eight different aggressive growth funds instead, to achieve even greater capital appreciation.

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Cheryl

10 months ago

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Nieves

11 months ago

Hold on, I think Clem might have gone overboard with the front-end loads. That's going to eat into their returns. He should have looked at funds with deferred charges instead.

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Theresia

11 months ago

Clem's recommendation seems reasonable to me. Growth funds are a good fit for their investment objective, and diversifying across eight funds provides decent risk management.

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