I recently passed my Series 65 to become an IAR, Investment Adviser Representative. When taking the practice exams it was sometimes difficult to separate what I thought was the best answer and what was the right answer for the exam. This became very clear in the questions dealing with Client Investment Recommendations and Strategies. The following image is a direct screenshot from one of my online practice exams.
When I reviewed the exam to see which questions I got wrong, I stared at this question in disbelief. I thought it was a joke, but then I remembered these exams are supposed to closely replicate the actual Series 65 exam. I understand (technically) as long as the advisor discloses potential conflicts of interest to the client, certain recommendations may be considered legal. Yes, legal… even though it does not make it the right thing to do.
This question in particular is dealing with an agent of a broker/dealer, so the recommendation only has to be suitable for the client. I get it. But that is not the point. Whether the person making the recommendation holds themself out as an insurance agent, investment advisor, financial advisor or whatever else you want to call it, the recommendations should be what is best for the client. Not what is best for the advisor.
So, I hope the advisor enjoys the trip to Las Vegas while their client puts money into a complex product they don’t stand a chance of fully understanding. Maybe when the advisor is buzzed from the complimentary champagne, they will get the courage to tell their client about the steep surrender charge they will face if they want to get out of the annuity. Or perhaps while the advisor is lounging poolside at the Bellagio they could tell their clients how the upside gain is capped at 5%.
But the advisor did disclose the conflict of interest. So, it’s all good.
These types of incentive programs may be one of the reasons financial advisors have felt pressured to sell products to their clients they probably do not need. Advisors think this type of practice is acceptable because the Series 65 exam is telling them it may be permissable!
We still see the “sales first” culture at companies today. Just look at these recent headlines:
If we want to change the way financial institutions operate, and also stop advisors from making incentive-driven product sales to clients, maybe we should stop teaching advisors this practice is okay.
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