Finra Exam Series-63 Topic 3 Question 8 Discussion

Actual exam question for Finra's Series-63 exam

Question #: 8
Topic #: 3

Joe Treader is the owner of a small, state-registered investment advisory firm that is on the verge of becoming insolvent. One of his clients who has become like a mother to him is aware of his financial difficulties and has offered to sell off some of the assets that he manages for her and loan him the money to get him through this period of economic uncertainty until he is able to get on his feet again.

Can Joe take her up on her offer?

AYes. Based on the facts presented, it is an unsolicited offer and, as such, Joe can (and should) accept it.

BYes, but only if Joe draws up a formal loan agreement with a fair interest rate, based on the going market rates, stated in the agreement as well as a firm date for principal repayment.

CNo. As the client's investment adviser, he has a fiduciary relationship with the client. Entering a loan agreement with this client could lead to conflicts of interest.

DBoth A and B are true.

Show Suggested Answer

Suggested Answer: C

No, Joe cannot take his client's offer of a loan because it could lead to a conflict of interest--if not today, perhaps in the future--and as a fiduciary Joe will be expected to put this client's welfare ahead of his own. If it takes him a lot longer than expected to get on his feet again, he may be tempted to act in his own best interest.

by Lottie at Apr 06, 2025, 01:05 PM

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Ettie

29 days ago

I'm with Dorinda on this one. Joe can't just accept a loan from a client, even if they're like family. That's a recipe for disaster. Gotta maintain those professional boundaries, you know?

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Layla

10 days ago

I agree with you, boundaries are important in professional relationships.

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Camellia

2 months ago

I disagree. Joe should not accept the offer. It could create conflicts of interest given his role as the client's investment adviser.

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Cassie

2 months ago

Haha, imagine if Joe just took the money and said 'Thanks, mom!' That would be a bad idea. But I can see why he's tempted - gotta keep the business afloat somehow.

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Domitila

13 days ago

B) Yes, but only if Joe draws up a formal loan agreement with a fair interest rate, based on the going market rates, stated in the agreement as well as a firm date for principal repayment.

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Tamie

17 days ago

Haha, yeah that would be pretty funny if he called her 'mom'. But he really needs to think about the consequences of accepting the money.

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Sueann

1 months ago

A) Yes. Based on the facts presented, it is an unsolicited offer and, as such, Joe can (and should) accept it.

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Ceola

2 months ago

I agree with Rebbeca. Joe can accept the offer as long as he ensures it's done in a transparent and fair manner.

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Yvette

2 months ago

Personally, I think option B is the way to go. Joe should get the loan, but make sure there's a formal agreement with a fair interest rate and repayment terms. Gotta cover your bases, you know?

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Jarod

1 months ago

Yeah, it's important to have everything in writing to avoid any potential conflicts down the line.

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Gary

1 months ago

I agree, option B sounds like the most responsible choice in this situation.

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Dorinda

2 months ago

I gotta go with C on this one. As an investment adviser, Joe has a fiduciary duty to his clients. Accepting a loan could compromise that relationship and lead to all sorts of conflicts.

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Frank

13 days ago

I see your point. It's a tough situation for Joe to navigate.

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Jamie

14 days ago

That's true, but even with a formal agreement, there could still be conflicts of interest since she is a client.

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Blair

15 days ago

But wouldn't it be okay if Joe drew up a formal agreement with fair terms, like option B suggests?

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Tarra

19 days ago

I agree with you, C seems like the most ethical choice in this situation.

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Raina

25 days ago

True, it's important for Joe to consider all the implications before making a decision.

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Elizabeth

1 months ago

That's a good point. Maybe a formal agreement could help alleviate some of the conflicts of interest.

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Brynn

2 months ago

But wouldn't it be okay for Joe to accept the offer if he draws up a formal loan agreement with fair terms?

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Lucina

2 months ago

I agree with you, C seems like the most ethical choice in this situation.

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Josefa

2 months ago

Hmm, this is a tricky one. I'm not sure I'd want to accept a loan from a client, even if they're like family. There could be some serious ethical issues there.

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Rebbeca

2 months ago

I think Joe should take her up on her offer. It's a kind gesture from the client.

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