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Finra Series-63 Exam - Topic 2 Question 26 Discussion

An investment adviser suggests that his client, Arnold, a 74-year old gentleman, should consider a reallocation of the assets in his portfolio. The adviser tells Arnold that he has far too much invested in bonds, which don't earn as much as stocks. He advises Arnold to take 80% of the money he has in bonds and invest it in an aggressive growth mutual fund that has provided an average annual return of 40% over the past three years. Arnold is impressed and follows this advice. Shortly thereafter, there is a steep drop in the market in general, and the net asset value of the aggressive growth mutual fund falls 85%.Does Arnold have any remedies available to him?
D) Yes. Arnold can sue for the amount of his losses, plus interest, court costs, and attorneys' fees.
A) No. Arnold had the choice and got greedy. As the old saying goes, ''Bulls get rich, and bears get rich, but pigs get led to slaughter.''
B) Yes. Arnold can sue for the amount of his losses, plus interest, as well as an amount assessed by the court for ''pain and suffering.''
C) No. The investment adviser had no way of knowing that the market was going to fall when he provided the advice, so the adviser did not fail in his fiduciary responsibility to Arnold.

Finra Series-63 Exam - Topic 2 Question 26 Discussion

Actual exam question for Finra's Series-63 exam
Question #: 26
Topic #: 2
[All Series-63 Questions]

An investment adviser suggests that his client, Arnold, a 74-year old gentleman, should consider a reallocation of the assets in his portfolio. The adviser tells Arnold that he has far too much invested in bonds, which don't earn as much as stocks. He advises Arnold to take 80% of the money he has in bonds and invest it in an aggressive growth mutual fund that has provided an average annual return of 40% over the past three years. Arnold is impressed and follows this advice. Shortly thereafter, there is a steep drop in the market in general, and the net asset value of the aggressive growth mutual fund falls 85%.

Does Arnold have any remedies available to him?

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Suggested Answer: D

If Arnold loses his money because he took the advice of his investment adviser and reallocated a large percentage of his money from bonds to an aggressive growth mutual fund, he can sue the investment adviser in civil court for the amount of his losses, plus interest, court costs, and attorneys' fees. The courts do not award damages for ''pain and suffering'' in these cases. The investment adviser failed in his fiduciary responsibility to Arnold in recommending that a 74-year old man reallocate a large percentage of his money from the relative safety of bonds to the much riskier investment of an aggressive growth mutual fund.


by Wayne at Jun 29, 2026, 02:59 PM

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Lavonda
I recall that remedies can depend on whether the adviser acted in Arnold's best interest. If he didn't, maybe Arnold does have a case for his losses.
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Heike
5 days ago
I'm a bit confused about whether Arnold can actually sue. I thought that if he made the choice to follow the advice, he might not have grounds for a claim.
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Brent
10 days ago
I think there was a practice question about a similar situation where the adviser was held liable for not considering the client's risk tolerance. I'm not sure if that applies here.
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Nathan
15 days ago
I remember we discussed fiduciary responsibility in class, and it seems like the adviser might not have breached that duty since market fluctuations are unpredictable.
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