Cassie Clueless has recommended that a client purchase shares of a mutual fund prior to its ex-dividend date, so that the client will receive the dividends when they are distributed. In which of the following situations might this recommendation be justifiable and not in violation of NASAA rules?
I. The investor has refused to provide Cassie any information regarding his investment goals.
II. The investor is a young professional with an investment goal of long-term capital appreciation.
III. The investor is a retiree in a low tax bracket and needs current income to augment her social security check.

Question

Quizplus · Accepted Answer

If Cassie makes her recommendation based on the scenario described in Selection III, she is not violating any NASAA rules. It is advantageous for an investor who is a retiree in a low tax bracket and needs current income to augment her social security check to buy shares of a mutual fund before its ex-dividend date in order to receive the dividend income. The NASAA rule states only that an agent cannot indicate that the purchase of shares of a mutual fund prior to the ex-dividend date would be advantageous to the client "unless there are specific, clearly described tax or other advantages to the customer." It would be unethical for Cassie to recommend this strategy to an investor whose investment goals were unknown to her, as in Selection I, or to an investor who is looking for long-term capital appreciation and has no need for the dividend income--which will be taxable--as in Selection II.

Cassie Clueless Has Recommended That a Client Purchase Shares of a Mutual