Business PracticesQuestion 60 of 100
A hesitant client says she will invest only if she cannot lose money. Her agent replies, 'Don't worry, if the stock drops below your purchase price I'll personally cover the difference.' The agent has:
a.Violated the prohibition on guaranteeing a customer against loss
b.Acted properly because the promise was voluntary and personal
c.Acted properly if the firm approves the arrangement in writing
d.Merely made a puffing statement with no regulatory consequence
Explanation
Guaranteeing a customer against loss, whether by the firm or personally by the agent, is an unethical practice under the NASAA model rules because it misrepresents the risk of the investment. No firm approval can authorize the guarantee. A statement that removes the client's perception of risk is a misrepresentation of a material fact rather than harmless puffery.
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