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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Yvette

10 days 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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Dorinda

17 days 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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Brynn

3 days 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

4 days ago

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

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Josefa

18 days 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

18 days ago

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

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