Series 7 Exam Question 290: Answer and Explanation

Question: 290

Mike Smith is one of your clients. Mike is 55 years old, has a wife, two young adults going to college, and two children living at home. You have helped Mike determine his investment profile and how much risk he should be willing to take. However, Mike is hot on a particularly speculative security that doesn't fit his investment profile. Mike calls you saying he wants to purchase $20,000 worth of this security. What should you do?

• A. Accept the order and mark it as unsolicited.
• B. Refuse the order because it doesn't fit his investment profile.
• C. Do nothing until talking to a principal.
• D. Limit Mike's exposure by making sure that he doesn't purchase more than $5,000 worth of this speculative security.

Correct Answer: A

Explanation:

A. You can accept the trade and mark it as unsolicited. Even if a customer wants to purchase a security that doesn't fit their investment profile, you can still accept it in most cases by marking it as unsolicited. I call this the CYD (cover your derriere) rule. As long as you mark the ticket as unsolicited, you save yourself some aggravation (and maybe arbitration) if Mike loses money on the deal.