Which of the following practices would be prohibited in connection with the sale of investment company shares? I . selling a client shares of a load…

The scenarios described in Selections II and III only would be prohibited. Five S&P 500 Index mutual

funds, even if offered by different fund families, all have the same investment objective-duplicating

the returns earned on the S&P 500 Index, and they will be invested in very similar stocks. Therefore,

the client is getting little or no more diversification of risk by investing in five funds over investing in

just one. The agent is just getting richer from more commissions. Encouraging a client to swap his

money between two funds in the same family without informing the client that this creates a taxable

event is not providing the client with “full and fair disclosure.” It may well be in the client’s best

interest to make the switch, but he needs to be made aware of the tax consequences. It is not

necessarily prohibited to sell a client shares of a load stock fund when a no load stock fund with the

same investment objective exists as long as the agent believes that the load stock fund is a better

investment for his client.