General Securities Sales Supervisor (Series10) Practice Exam

What is the responsibility of a manager under FINRA with regards to recommending stocks to customers?

1. To recommend any stock regardless of suitability

2. To ensure suitability for each customer before making a recommendation

3. To recommend only high-rated stocks for customer portfolios

4. To follow a blanket recommendation approach

The correct answer is: To ensure suitability for each customer before making a recommendation

A manager's responsibility under FINRA when recommending stocks to customers is to ensure suitability for each customer before making a recommendation. This means that the manager must assess and take into consideration the individual customer's financial situation, investment objectives, risk tolerance, and overall financial needs. FINRA regulations stress the importance of making recommendations that fit each customer's profile to promote investor protection and confidence in the markets. Financial professionals are tasked with conducting appropriate due diligence and maintaining comprehensive knowledge about the investments they recommend, verifying that those recommendations align with the clients' best interests. Therefore, the manager must carefully evaluate whether a stock is suitable based on the specifics of the customer's financial circumstances. In contrast, other approaches such as recommending any stock without regard to suitability, suggesting only high-rated stocks, or employing a blanket recommendation approach do not align with the regulatory requirements and ethics expected in the securities industry. These alternative methods could lead to potential misalignment of interests, increased risk for customers, and violations of FINRA's suitability standards.