Selling Away

Lesson

Selling away is an unethical business practice in which a financial professional sells or solicits securities that are not approved by their firm or not registered with the appropriate regulatory authority.

Practice Question #1

Which of the following best describes selling away?

A) Excessive trading in a client's account to generate commissions

B) Trading securities for one's own account before executing a large client order

C) Selling or soliciting securities not approved by a financial professional's firm or not registered with the appropriate regulatory authority

D) The execution of trades in a client's account without their prior knowledge or consent

Select an option above to see an explanation here.

A) This describes churning. B) This describes front-running. C) Selling away is selling or soliciting securities not approved by a financial professional's firm or not registered with the appropriate regulatory authority. D) This describes unauthorized trading.

Terms

Selling away:: The practice of selling or soliciting securities not approved by a financial professional's firm or not registered with the appropriate regulatory authority.

Practice Question #2

Which of the following is NOT a potential consequence of selling away?

A) Disciplinary action by a regulatory authority

B) Loss of clients' trust and business

C) Increased reputation for the financial professional

D) Legal liability for losses incurred by clients

Select an option above to see an explanation here.

A) Selling away can result in disciplinary action by a regulatory authority. B) Selling away can lead to losing clients' trust and business. C) Selling away is unethical and can harm clients and the financial professional's reputation. D) Selling away can result in legal liability for client losses.

Historical Example

In the early 2000s, a financial advisor was found to have sold away millions of dollars in unregistered securities to his clients, many of whom were elderly and unsophisticated investors. The advisor had promised high returns and low risk, but the investments proved fraudulent. The advisor was eventually barred from the industry and ordered to pay restitution to his clients.

Practice Question #3

What does the term "Selling Away" refer to in the context of the Series 65 exam?

A) Selling securities not held or offered by the broker-dealer

B) Selling securities to clients without proper disclosure

C) Selling securities without a license

D) Selling securities at a higher price than the market value

Select an option above to see an explanation here.

A) Selling Away refers to the practice of selling securities not held or offered by the broker-dealer, which is correct. B) Selling securities to clients without proper disclosure is unethical but not specifically Selling Away. C) Selling securities without a license is illegal but not specifically Selling Away. D) Selling securities at a higher price than the market value is unethical but not specifically Selling Away.

Real-World Example

A financial advisor recommends that a client invests in a private real estate venture not approved by the advisor's firm. The client, trusting the advisor's judgment, invests a significant portion of their retirement savings in the venture. The investment turns out to be a scam, and the client loses their entire investment. The advisor is found to have engaged in selling away and is subject to disciplinary action.