4.e

Question 1

What must you disclose to a customer if you recommend an illiquid investment?

Answer 1

You must disclose the fact that it is illiquid.

If a customer has a liquidity need, an illiquid investment would not be suitable.

Question 2

What must be provided to a customer before their account can be approved for options trading?

Answer 2

They must be provided with an options disclosure document, which explains the risks of trading options.

This is NOT required if a customer buys a mutual fund that invests in options.

Question 3

What types of charges must be disclosed to a customer before they purchase an investment?

Answer 3

Any charges that apply when the investment is sold must be disclosed. Key examples include:
- Surrender Fees (common with annuities).
- Deferred Sales Charges (CDSC), also known as a back-end load (common with Class B mutual fund shares).

Question 4

What is FINRA’s general stance on using borrowed money for investments?

Answer 4

FINRA considers it generally unsuitable.

A representative should not recommend that a customer borrow money or liquidate assets to invest in securities.