Which choice is the best option? I am stumped on how I am supposed to think through this question, as I was under the impression that both are prohibited.
Which option is prohibited?
A) Earning fees for the performance of a client’s portfolio
B) Having a client waive consent on an agents excessisve trading activity
Hi @Agnes_Hettinger, Great question. FINRA is looking for the “best” (most clearly prohibited) answer, even if more than one choice is questionable.
The best answer is B because the client cannot waive an agent’s excessive trading (churning). Churning is a prohibited practice and a violation of FINRA rules, regardless of what the client signs, because a customer’s “consent” can’t legalize misconduct.
Answer A can sometimes be allowed because performance-based fees are generally not permitted for broker-dealers, but there are limited exceptions (especially in certain advisory or institutional contexts). Since A has exceptions and B doesn’t, B is the strongest / best prohibited option. Hope this helps!
Best,
Mataia
Ahh ok. Totally get it now. Thank you. Essentially, even at just a 1% chance, that wiggle room makes all the difference. The key is knowing which is 99% vs 100%, as I thought both were 100%. Thanks again.