Business PracticesQuestion 77 of 100
An agent regularly advises clients to redeem shares of one mutual fund family and buy a similar fund in another family, generating a new front-end sales charge each time. Absent a documented benefit to the client, this is:
a.Proper diversification across fund sponsors
b.Acceptable because each fund is individually suitable
c.Acceptable because the client signs each order ticket
d.Improper mutual fund switching, because inducing exchanges between fund families without reasonable grounds imposes needless sales charges
Explanation
Recommending that a client move between fund families without reasonable grounds is an unethical practice, since the new sales charge is a real cost with no corresponding benefit when comparable objectives are available within the existing family. Suitability of each individual fund does not justify the repeated charges. Signed order tickets document the trade but do not supply the required reasonable basis.
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