Sales Practices and Regulations

A Series 6 representative may only sell the products the license covers: mutual funds, UITs, variable contracts, and municipal fund securities. Stocks, most bonds, and options are Series 7 territory.

Suitability and KYC

Know your customer (KYC) means collecting facts: age, income, net worth, tax situation, time horizon, and risk comfort. Suitability means the recommendation has to fit those facts. A 75-year-old who needs income and hates losses is not a match for an aggressive growth fund with a long CDSC.

Recommendations and switching

Moving a customer from one fund family to another can restart sales charges. That is only appropriate if the new fund is clearly better for that person, not because it pays the representative more. Document the reason.

Anti-money laundering

Firms must know who is opening the account, watch for odd cash movement, and file reports when the law requires. You are not a detective, but you cannot ignore a red flag or help someone hide the source of money.

Taxes in plain language

• Fund dividends and capital-gain distributions are usually taxable in a brokerage account even if you reinvest them.
• Retirement accounts follow their own tax clocks (see the retirement chapter).
• Variable annuity earnings are taxed as ordinary income when withdrawn.

Who writes the rules

The SEC writes federal securities law. FINRA writes conduct rules for broker-dealers and this exam. State insurance departments license the insurance side of variable products. When those rulebooks disagree, the stricter customer-protection rule is the one to follow in practice.