Ethical Business Practices – Series 7 Exam
- April 1, 2025
- Posted by: 'FINRA Exam Mastery'
- Category: Finance
⚖️ Ethical Business Practices – Series 7 Exam
The Series 7 exam, administered by FINRA, assesses not only product knowledge and regulatory compliance — it places strong emphasis on ethical business practices. These rules ensure that registered representatives act in clients’ best interests and uphold the integrity of the securities industry.
Here’s what you need to know about ethical conduct for the Series 7.
📘 Key Topics Covered
1. Fiduciary vs. Suitability Standard
- 🟦 Fiduciary duty (for investment advisers): Requires acting in the best interest of the client at all times.
- 🟦 Suitability standard (for broker-dealers): Requires making recommendations suitable based on client profile, but not necessarily the best product.
📌 Series 7 representatives must adhere to the suitability standard unless dually registered.
2. Know Your Customer (KYC)
Ethical practice starts with understanding the client:
- Investment objectives
- Financial status
- Risk tolerance
- Time horizon
- Tax status
❗ Making recommendations without a clear client profile may be a suitability violation.
3. Disclosure Obligations
Ethical reps fully disclose:
- Risks of a product
- Fees and commissions
- Conflicts of interest
- Breakpoints and sales charges
📌 Failure to disclose may result in charges of misrepresentation or omission — both unethical and illegal.
4. Prohibited Sales Practices
The Series 7 exam tests your ability to recognize unethical behavior, including:
| Prohibited Action | Why It’s Unethical |
|---|---|
| Churning | Excessive trading to generate fees |
| Breakpoint Sales | Avoiding discounts to increase commission |
| Unauthorized Transactions | Trading without client consent |
| Sharing in Client Accounts | Only allowed with written approval and proportional funding |
| Front Running | Placing personal trades ahead of client orders |
| Insider Trading | Trading based on material nonpublic info |
5. Fair Dealing with Clients
- Reps must always act honestly and fairly
- Cannot guarantee returns or promise performance
- Must maintain confidentiality of client information
🔍 Even the appearance of unethical conduct can lead to suspension or disqualification.
🧠 Series 7 Exam Ethics Tip
Expect scenario-based questions that ask you to identify if a practice is fair, suitable, or misleading. Always pick the option that aligns with client-first principles, full transparency, and firm policies.
🚀 Prepare for the Ethics Questions
Passing the Series 7 means mastering more than math — it requires understanding and applying ethical principles in real-world contexts.
Get access to ethics-focused practice questions, flashcards, and regulatory guides at:
👉 finra-exam-mastery.com