SERIES 6 Progress exam 5 Aand B

A Series 6 registered representative is not permitted to: a. Offer tax advice b. Open a joint account with a client c. Act as custodian for a client's son's UGMA d. Hold a second job

A A customer should be looking to his or her accountant for tax advice. While a RR can discuss the tax characteristics of a product, the specific impact on a client's personal situation is not permitted. RRs can open joint accounts with clients, act as fiduciaries and hold second jobs.

If an investor asks a registered representative to underline the most important facts in a mutual fund prospectus, the RR: a. May not do this since it violates federal securities laws b. May do this if a principal of the broker-dealer approves the change c. May do this if the change is filed with FINRA d. May do this without restriction since it was at the customer's request

A A prospectus may not be amended or altered in any way even with a highlighter unless the changes are filed with the SEC. An RR may discuss portions of the prospectus with the client, but should not make any marks on the document.

A client has not paid the last premium on his variable life insurance policy. The company has informed the client that his contract will lapse at the end of the policy's 31-day grace period. What action must the client take to keep the policy in force? a. Pay all premiums due b. Pay all premiums due and provide evidence of insurability c. Pay all premiums due and obtain a certified medical exam from a company approved physician d. Pay all premiums past due plus prepay 10% of the policy's face value to set up a reserve fund for any potential future late payments

A During the grace period, the policy does not lapse and investors may catch up on any premiums due. Once a policy lapses, the insured would need to obtain a new policy.

In which of the following would an investor own accumulation units? I. In a periodic payment deferred annuity II. In a single payment deferred annuity III. In an immediate life annuity IV. In an immediate annuity with a 10-year period certain a. I and II only b. I and IV only c. I, III, and IV only d. I, II, III, and IV

A During the pay-in period of a variable annuity, an individual owns accumulation units. These units will be owned until the money is to be withdrawn. Once a person wishes to begin receiving benefit checks, the accumulation units are exchanged for annuity units. Individuals having deferred annuities wish to receive benefit checks at some future date and will hold accumulation units until that date. Those owning immediate annuities wish to receive payments immediately and do not hold accumulation units.

An account is opened for an employee of another member firm. Which of the following must be done? a. Notify the person's employer b. Notify the SEC c. Notify FINRA d. Complete Form U-7

A If a member firm intends to open an account for the employee of another member firm, the account's employer must be notified and duplicate statements and confirmations must be sent upon request. The employee must be notified that the employer will be apprised of the opening of the account. FINRA and the SEC need not be notified.

Mike's spouse died recently. Mike has two small children, ages two and four. Mike's spouse was covered by a variable life insurance policy. Rather than take a lump-sum payout of the death benefit, Mike would prefer a payout that would supplement his income until the children have finished college. Which of the following settlement options would best meet Mike's needs? a. Fixed-period option b. Fixed-amount option c. Life income with period certain d. Joint and last survivor income

A Since Mike wants supplemental income only until his children have finished college, the fixed-period option would probably be most appropriate. Under this option, the insurance company pays the beneficiary equal installments, at regular intervals, over a specified period of time.

Which of the following types of insurance policies requires renewal at stated intervals? a. Term b. Variable c. Universal d. Cash payment

A Term life insurance requires renewal at stated intervals, typically at one or five years. Premiums increase upon renewal because the insured has grown older and the health risks are normally greater.

Which of the following actions by an applicant for registration are grounds for statutory disqualification? a. Making false or misleading statements concerning her business relationship with a person who has been banned from the securities industry b. Failing to graduate from high school c. Conviction in U.S. federal court of a securities-related felony 15 years ago d. Failing to notify the firm of a felony indictment for which the applicant was not convicted

A The following actions would be grounds for the statutory disqualification of an applicant's registration. • Having been expelled or suspended from membership or participation in, or barred or suspended from being associated with, any self-regulatory organization or foreign equivalent of a self-regulatory organization • Having associated with any person who is known or, with exercise of reasonable care, should be known, to be a person that is subject to an order of the Commission, other appropriate regulatory agency, or foreign financial regulatory authority (making choice (a) correct) • Having been convicted, not simply indicted, within the last 10 years of any felony or securities-related misdemeanor (making choices (c) and (d) incorrect) • Having willfully made any statement that was false or misleading with regard to any material fact, or having omitted to state any material fact in any self-regulatory organization application, report, or proceeding The level of education is not important. Had the applicant made a false statement regarding his level of education, would be grounds for disqualification.

Which of the following is NOT a factor in determining the amount of the net premium in a variable life policy? a. The investment chosen in the separate account b. The investment management fee c. Administrative expenses d. The sales charge

A The net premium is the amount of the premium payment that is actually invested in securities. When determining the net premium in a variable life policy, there are various fees and charges that are deducted from the premium paid. They are: the investment management fee, administrative expenses, and the sales charge as well as other operating expenses. The decision as to which subaccount of the variable policy's separate account in which to invest the funds is not a factor in determining the net premium.

Which TWO of the following statements are TRUE concerning a variable annuity? I. Taxes on gains (realized and unrealized) are deferred until withdrawals or payments are made II. Gains are taxed at ordinary income rates III. Gains are taxed at capital gains rates IV. No contributions may be made after age 70 1/2 a. I and II b. I and III c. II and IV d. III and IV

A One of the major advantage of annuities is tax-deferral. Earnings in the account, whether from realized gains, unrealized gains, dividends, or interest, are not taxed until they are withdrawn. However, all returns not attributable to the investor's basis are taxed at ordinary income rates, regardless of how they were generated.

Under FINRA's rules regarding communications with the public, which of the following choices is an acceptable product description? a. Flexo Life, a variable life insurance policy b. The Stock Market Annuity c. The Farmer's Growth policy d. The Sure Thing Safe Harbor Annuity

A Since product names can be misleading, SRO rules require an investment to be clearly described as either a variable life insurance policy or a variable annuity. Firms may use proprietary names, but all policy descriptions are required to clearly delineate the type of investment being offered.

A member firm is acting in the capacity of a broker and is charging a commission. The firm is acting as a(n): a. Principal b. Agent c. Dealer d. Market maker

B A FINRA member firm that is acting in the capacity of a broker and is charging a commission is acting as an agent.

Which types of periodic reports does a variable life policyholder receive? I. An annual prospectus II. A semiannual report of the securities held in the separate account III. An annual report informing the insured of the amount of the death benefit and cash surrender value IV. A semiannual report of the securities held in the general account a. I and II only b. II and III only c. II and IV only d. I, II, III, and IV

B Policyholders receive a financial statement listing the securities held by the separate account semiannually. Policyholders are also apprised of the death benefit and cash surrender value annually.

An individual is in the third year of accumulating an interest in a variable annuity with a deferred sales charge. A registered representative recommends a switch to a newly created variable annuity with a larger number of subaccount choices, also offered with a deferred sales charge. Which TWO of the following statements would be considered TRUE of this switch: I. FINRA would probably consider the switch unsuitable II. FINRA would probably not consider the switch unsuitable, since both annuities are offered with a deferred sales charge III. The switch would be taxable if it qualifies as a 1035 exchange IV. The switch would not be taxable if it qualifies as a 1035 exchange a. I and III b. I and IV c. II and III d. II and IV

B Since the investor is in the third year of accumulation, there will be a deferred sales charge incurred. By switching to another variable annuity, the individual will now be subject to the highest deferred sales charge, thus making the switch unsuitable. An exchange of annuities that qualifies for IRS Section 1035 treatment is not a taxable event.

Which TWO of the following statements are TRUE regarding the investment risk of a life insurance policy? I. Whole life policy writers bear the risk that the general account return will not meet the guaranteed rate II. Whole life policy owners bear the risk that the general account return will not meet the guaranteed rate III. Variable life policy writers bear the risk of poor separate account returns IV. Variable life policy owners bear the risk of poor separate account returns a. I and III b. I and IV c. II and III d. II and IV

B Since the writer of a whole life policy guarantees the return, the insurer bears the risk that general account returns will not meet the guaranteed rate. In a variable account, the writer does not guarantee increases in death benefits and cash value. They are dependent upon the returns in the separate account.

A client wanting only financial protection for her family in case of her premature death should buy: a. Whole life insurance b. Term life insurance c. Universal life insurance d. Health insurance

B Term life insurance buys protection at the lowest cost. If the insured does not die within the policy period, the policy expires without any cash value accumulation.

Which TWO of the following statements are TRUE concerning the death benefit on a variable annuity? I. The benefit skips the probate process II. The benefit must go through probate prior to distribution III. The beneficiary receives the proceeds tax-free IV. The beneficiary may have a tax liability when receiving the proceeds a. I and III b. I and IV c. II and III d. II and IV

B The death benefit on a variable annuity skips the probate process. Probate is a lengthy legal process in which the decedent's bills are paid and remaining assets distributed based on instructions generally left in a will. The recipient of a death benefit from a variable annuity may have to pay taxes on any amount above the contract's cost basis. For example, if a client invested $100,000 and died when the contract was worth $150,000, a nonspouse beneficiary may be required to pay taxes on the $50,000 above the decedent's contributions.

New equity issues may not be sold to: I. An RR's spouse II. An RR's minor children III. Employees of the issuer a. I only b. I or II only c. I or III only d. I, II, or III

B The immediate family members of RRs are considered restricted persons and not permitted to purchases equity IPOs. Employees of the issuer are not considered restricted persons.

A person who invests in an annuity with a fluctuating stream of income would be most concerned with the performance of the insurance company's: a. General account b. Separate account c. Auditors d. Sales force

B The performance of a variable annuity is related to the performance of the separate account. The insurance company's general account backs the company's fixed annuities and traditional (guaranteed) insurance products.

Which of the following is TRUE of an insurance company fixed account, but NOT TRUE of a separate account? a. It is often available as a subaccount in a variable product b. The insurance company absorbs investment risk c. It is registered under the Investment Company Act of 1940 d. Its manager must be a registered investment adviser

B The returns on the fixed account of an insurance company are guaranteed by the company. There is no guarantee on the returns of a separate account and the purchaser assumes the investment risk. Choice (a) is incorrect because, in addition to several separate accounts, variable products often allow investors to allot part of their investment to the fixed account. Choice (c) is incorrect because only separate accounts, not fixed accounts, are registered with the SEC. Likewise, choice (d) is not correct since managers of separate accounts, not fixed accounts, must be registered investment advisers.

The life insurance policy that allows for the greatest flexibility regarding the payment of premiums is: a. Decreasing term b. Universal c. Variable d. Split dollar

B Universal life allows the policyholder to vary the premium payments. The holder can elect to pay for the entire policy in one payment, allowing the insurance company to withdraw premium payments as required. Premium payments can also be made in specified intervals. However, payments that are too low may cause the policy to lapse if they do not cover the cost of insurance and other policy expenses.

All of the following are TRUE of the death benefit of a variable life insurance policy, EXCEPT: a. It is included in the estate of the deceased b. It is not taxable to the beneficiary c. It may be reduced to zero by poor performance of the separate account d. The beneficiary may elect to receive the death benefit as an annuity

C Although the death benefit of a variable life policy may increase or decrease due to the performance of the separate account, it will not decrease below a minimum guaranteed amount (the face value of the policy).

Which of the following is/are TRUE of both a mutual fund and a variable annuity separate account? I. The advisor assumes the investment risk II. The portfolio is professionally managed III. The value of the investment is directly related to the value of the securities in the portfolio IV. Earnings are tax-deferred until withdrawn from the investor's account a. III only b. II and IV only c. II and III only d. I, II, III, and IV

C Choice (d) is only true of mutual funds when the funds are held in a tax-deferred account, such as an IRA. Otherwise, mutual fund dividends and distributions are taxable even if the investor elects to reinvest them. The earnings in a variable annuity separate account are not taxed until withdrawn.

Decisions of FINRA arbitration panels: a. May be appealed b. Are not binding if either party contests the decision c. Are binding upon all parties to the arbitration d. Are not binding if both parties agree not to accept the decision

C Decisions of FINRA arbitration panels are binding upon all parties to the arbitration. The parties must agree to accept the findings of the arbitration panel before submitting to arbitration.

A variable life insurance policy has an AIR of 5%. The separate account recently performed at a 4% rate of return. Which of the following statements best describes the effect of this rate of return on the death benefit of the policy? a. The death benefit will increase as long as the rate of return is positive b. The death benefit will decrease to a determined level c. The death benefit will decrease, but not below the guaranteed minimum d. The rate of return of the separate account affects only the cash value, not the death benefit

C If the return of the separate account exceeds the AIR, the death benefit will increase. If the return of the separate account is less than the AIR, the death benefit will decrease. However, the death benefit cannot decrease below the initial face value of the policy.

Which of the following is an expense or charge NOT normally associated with a variable annuity? a. Investment management fees b. Expense charges c. Redemption fees d. Administrative expenses

C Investment management fees, expense risk charges, and administrative expenses are all charges associated with variable annuities. A redemption fee is assessed upon redemption of a mutual fund.

An RR is talking to a mutual fund prospect who seems almost ready to purchase a large amount of a specific fund. To clinch the sale, the RR mentions the fact that the fund is about to pay a large dividend and that the client can get the dividend by making the purchase today. This type of appeal is: a. Acceptable, if it is based on the truth about the fund's upcoming dividend b. Acceptable only if the client is in a low tax bracket c. Not acceptable, since it is considered selling a dividend d. Not acceptable, since the rep would not have access to such information

C It is a violation of industry Conduct Rules to induce the purchase of a mutual fund based on the fact that the fund is paying an upcoming dividend. This implies that receiving the dividend is an advantage to the investor, which is generally not the case. This practice is called selling dividends.

A retired teacher had participated in a tax-sheltered annuity. Contributions made on her behalf into the plan totaled $100,000. This year she received a lump-sum payment from the annuity of $160,000. How is the distribution taxed and what is her cost basis? a. $60,000 is taxed as ordinary income and $100,000 is returned to her tax-free as it is her cost basis b. $60,000 is taxed as a long-term capital gain and $100,000 is returned to her tax-free as it is her cost basis c. $160,000 is taxed as ordinary income and she has a zero cost basis d. $160,000 is taxed as long-term capital gain and she has a zero cost basis

C Tax-sheltered annuities (403b plans) provide deductible contributions and tax-deferred growth. Since the entire amount has not been subject to taxation the entire amount is taxable when distributed.

Many investors prefer to receive variable annuity payments under the straight-life payout option because it: a. Is the most conservative method for receiving payments b. Allows for a beneficiary for the entire payout period c. Provides the maximum cash flow of all payout options d. Provides an equal amount each month for the investor's lifetime

C The annuitant will receive the greatest cash flow from the straight-life annuity payout option. This option allows the annuitant to receive payments as long as the annuitant is alive. At death the payments stop. No beneficiary is designated and the insurance company is relieved of its obligation to make payments. The annuitant has the greatest degree of risk with this type of payout

The cash surrender value of a variable life insurance policy is calculated: a. Daily b. Weekly c. Monthly d. Annually

C The cash surrender value of a variable life insurance policy is calculated monthly. If one wanted to know the current cash value of the policy, it is normally calculated everyday similar to a mutual fund.

Ms. Smith, a 70-year-old woman, has been funding a variable annuity for many years and is planning to annuitize. She is looking for a payout that would provide her with the greatest payment per period, to last as long as she lives. Which of the following payout options should Ms. Smith choose? a. Installments for a designated amount b. Joint and last survivor c. Straight life d. Unit refund life

C The straight life option would provide the largest payout for Ms. Smith. She would receive a payment for as long as she lives, however, no payments would be made after her death. Since Ms. Smith has a variable annuity, she assumes the investment risk and payments will fluctuate with the performance of the separate account.

A salesperson who wishes to represent a variable life insurance company must properly register with all of the following regulators, EXCEPT: a. The State Insurance Commissioner b. The State Securities Commissioner c. The Federal Insurance Commission d. FINRA

C To be properly licensed to sell variable insurance products, a salesperson must obtain the appropriate FINRA license (Series 6 or Series 7), as well as state securities and insurance licenses. There is no federal insurance licensing agency.

An individual worked for Worthington Corporation for 20 years and was covered under a qualified pension plan. During the accumulation period, the employer made all of the contributions. During the payout period, the pension plan participant would treat distributions as: a. Part return of capital and part ordinary income b. All capital gains c. All ordinary income d. Tax-exempt income

C When the employer has made all of the contributions to an employee's pension plan, the employee has a zero-cost basis and the entire payout is treated as ordinary income.

In the case of a severe business decline, income payments under a fixed-dollar annuity contract will probably: a. Increase b. Decrease c. Remain the same d. Fluctuate rapidly

C Benefit payments from a fixed-dollar annuity will always remain the same, regardless of the performance of the economy or the stock market.

Decisions under the Code of Arbitration: a. May be appealed b. Are not binding if either party contests the decision c. Are binding upon all parties to the arbitration d. Are not binding if both parties agree not to accept the decisions

C Decisions under the Code of Arbitration are binding upon all parties to the arbitration. The parties must agree to accept the findings of the arbitration panel before submitting to arbitration.

Which TWO of the following statements are TRUE of a variable life insurance contract? I. Death benefits are calculated monthly II. Death benefits are calculated annually III. Cash surrender values are calculated monthly IV. Cash surrender values are calculated annually a. I and III b. I and IV c. II and III d. II and IV

C Regulations require a variable life insurance policy to have its death benefits calculated annually and cash surrender values, monthly.

Bedrock Insurance Company offers life and health insurance, as well as investment products, through its broker-dealer subsidiary. Bedrock Insurance is currently bankrupt. Who would be LEAST affected by this situation? a. Term policyholders b. Universal policyholders c. Variable annuity participants d. General creditors

C Variable annuity assets are held in a separate account, which are segregated from the other assets of the insurance company. This leaves insurance policyholders and general creditors facing the financial risk.

The most appropriate buyer for a variable life insurance policy is/are: a. A person who requires the discipline of forced savings b. Parents with a modest income who have young children c. A person who wants the assurance of a guaranteed cash value d. A person with an understanding of investments who can tolerate risk The most appropriate buyer for a variable life insurance policy is/are: a. A person who requires the discipline of forced savings b. Parents with a modest income who have young children c. A person who wants the assurance of a guaranteed cash value d. A person with an understanding of investments who can tolerate risk

D A person who is knowledgeable about investments is a candidate for variable life insurance because stocks and bonds are the foundation of the policy. As the market values of the securities fluctuate, cash value and death benefits change. Therefore, the insured must be able to tolerate risk.

A retired client of yours announces he is moving to Arizona. He wishes to keep his account with you. All of the following statements are TRUE, EXCEPT: a. The client should review any municipal securities he owns b. The RR needs to make sure he is registered in Arizona c. The RR's firm needs to be registered in Arizona d. FINRA should be notified promptly of the client's decision

D Clients moving to new states force a firm and an RR to think about blue sky issues. Realistically, can both the RR and the firm continue to conduct business with that client? Are both properly registered in the client's new home state? This is why choices (b) and (c) are good answers. So, why is the right answer choice (d) and not (a)? In truth, FINRA is not interested in where people choose to live, no matter how often they move. Choice (a) refers to the fact that some states tax the interest on municipal bonds issued by other states. In general, it is a smart idea to buy municipal securities from the state in which you live.

Dr. Celdane, a retired doctor, lives off the investment income from a substantial bond and equity portfolio. She is looking to minimize her tax liability and is seeking advice. Which of the following would you recommend? a. Opening an IRA b. Opening a Keogh plan based on her self-employed status c. Utilizing zero-coupon Treasuries to defer any tax liability d. Investing in a variable annuity

D Dr. Celdane cannot make a contribution to an IRA or a Keogh because she is not employed. Zero-coupon Treasuries would create a tax liability without providing any income. The variable annuity would offer a stream of income and tax deferral.

Newmont Securities handles numerous large transactions for the Spitfire Group, a family of funds that specializes in growth issues. Newmont derives substantial commissions for executing transactions on behalf of Spitfire. May Newmont provide special compensation to its registered personnel as an incentive to sell shares of Spitfire? a. Yes, because Spitfire deserves this treatment for the commissions generated b. Yes, as long as Newmont RRs do not sell dividends c. No, unless Spitfire is charging a 12b-1 fee d. No, since FINRA prohibits members from paying incentive compensation based on brokerage commissions received

D FINRA members may not favor or disfavor the sale of shares of any particular investment company on the basis of brokerage commissions received or expected by such members from any source, including that investment company.

If a registered representative terminates employment with a member firm, the jurisdiction of FINRA: a. Terminates upon the representative's resignation b. Remains effective for five days following termination c. Remains effective for 30 days following termination d. Remains effective for two years following termination

D FINRA retains jurisdiction over a registered representative for a period of two years following resignation.

Natalie is tired of investment firms calling her around the clock. She has asked her latest caller from BucketShop Brokers to place her name on the firm's do not call list. How long does the firm have to honor Natalie's request? a. Until the end of the business day b. Until the end of the week in which the request was made c. Up to 10 business days d. Up to 30 days

D If a client requests not to receive calls from a firm, the BD must note the request and put the person's name and telephone number on the firm's do not call list. Under FINRA rules, BDs must honor a person's do not call request within a reasonable time period. This period may not exceed thirty days from the date the request was made.

Pat White is a registered representative working in the investment banking department of a large broker-dealer. While assisting in the preparation of the registration statement for a new bond issue, Pat learns of some negative information about the company. Prior to the release of the information to the public, Pat tells a customer about the problem. The customer immediately sells some of the company's stock, thereby avoiding a sizeable loss. Which of the following statements is TRUE of this situation with regard to insider trading rules? a. Since no profit was earned in the transaction, neither the tipper nor the tippee has violated any rules. b. The tippee has violated insider trading rules by using inside information; the tipper did not personally benefit and is therefore not in violation. c. The tipper obtained the confidential information and is in violation; the tippee did not actively seek the information and is not in violation. d. Both the tipper and the tippee are in violation of insider trading rules.

D Persons who pass on confidential information to others are called tippers. If the information passed on by a tipper is used by the recipient (the tippee), both parties have violated insider trading rules.

The Maximum Fund Group charges 8.5% as a front-end sales charge on their family of funds. FINRA rules require that a breakpoint be available: a. To all first-time investors b. To fiduciary accounts only c. For each additional $5,000 purchase over the next 13 months d. At $10,000 or $15,000

D Under FINRA rules, a member firm may not sell shares of a mutual fund that assesses a maximum sales charge of 8.5% unless the fund offers breakpoints that meet one of two alternative standards. The first standard limits sales charges on purchases of $10,000 to 7.75% with another breakpoint at $25,000 which lowers the charge to 6.25%. The alternative standard is a maximum sales charge of 7.50% on purchases of $15,000 or more and a maximum aggregate sales charge of 6.25% on purchases of $25,000 or more.

An investor has been making payments into a variable annuity for the last 20 years. The investor decides to annuitize and selects a straight-life payout. Which TWO of the following statements are TRUE? I. The investment risk is assumed by the insurance company II. The investment risk is assumed by the customer III. The amount of the payment to the customer is guaranteed by the insurance company IV. The amount of the payment to the customer is not guaranteed a. I and III b. I and IV c. II and III d. II and IV

D Unlike a fixed annuity, the customer assumes the investment risk in a variable annuity. The amount of the payment depends on the performance of the separate account. The payment could increase, decrease, or remain the same since the amount is not guaranteed.

The prospectus for a variable annuity contract: I. Must be filed with the SEC II. May be delivered electronically III. Must provide full and fair disclosure IV. Must detail all sales charges and ongoing expenses of the contract a. I and II only b. I, II, and III only c. I, III, and IV only d. I, II, III, and IV

D Variable annuity products are subject to the provisions of the Securities Act of 1933 which requires delivery of a prospectus. The prospectus details all material facts of the contract and can be delivered electronically. However, if a person requests a printed copy one must be delivered.

Which TWO of the following statements concerning variable annuities are TRUE? I. Assets pass tax-free to the beneficiary II. Proceeds above the contract's cost basis are taxable to the beneficiary III. Death benefits are subject to probate IV. Death benefits skip the probate process a. I and III b. I and IV c. II and III d. II and IV

D When an annuitant passes the death benefits avoid probate. Any benefits above the cost basis of the annuity are taxed as ordinary income to the beneficiary.

An RR is discussing investments with an attorney, who proposes that he can refer business to her if he receives a cut and can make specific investment decisions for any client he introduces. Which of the following statements is TRUE regarding these practices? a. An attorney may never refer business to a registered representative b. The attorney could make specific investment decisions if they client tells you this is acceptable c. The attorney may share commissions because of his status as an attorney and his exemption under securities law d. The RR may refer clients with legal questions to the attornes

D A client may authorize a nonregistered person such as an attorney to place trades on the client's behalf. This activity would have to be supported by a written power of attorney and may not be granted orally. The attorney could not receive commissions because he is not registered as a representative. The RR may refer her clients to the attorney to make use of his expertise.

Jack is an RR who sells mutual funds and variable products. He is talking to a prospective customer who has the potential to be a good, long-term client. To encourage the client to open a mutual fund account with him, Jack offers to reduce the price of the first purchase by the amount of commission he is entitled to receive on the purchase. Which of the following statements is TRUE? a. This is permissible since Jack is allowed to do whatever he wishes with his commissions b. This is permissible if his broker-dealer grants its approval in writing c. This is not permissible since it is considered a guarantee against loss d. This is not permissible because it does not maintain the public offering price of the fund as described in the prospectus

D As a new issue, a mutual fund must be sold at the public offering price, which is calculated as described in the fund's prospectus. FINRA members and RRs may not discount the POP unless the discount is described in the prospectus (e.g., a breakpoint for a large purchase).