Associated Person

  

It sounds so devious. Picture a bright light shining in your face and a dark voice asking, "Are you now or have you ever been associated with an associated person?" The reality is far less ominous.

An "associated person" is just a principal of a FINRA-covered firm. They are "associated" with it and have to follow the firm's standards in their behavior (and in their golf game). If the firm has a softball team, they're probably part of it. Yawn.

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Finance: What are Prudent Investor Rule ...8 Views

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finance a la shmoop what are prudent invest our rule standards via know your

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client rule and unsuitable recommendations well let's start with

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the prudent investor rule standards their standards for what is rational [Man discussing prudent investor rules]

00:17

like those who can't afford to take a ton of risk think little old ladies who

00:23

are retired with just enough money to make it to you know the end well they [Old woman with pocket watch]

00:28

can't afford to take the risk of volatile equities like a small cap fund

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that can whipsaw 30% up and 30% down in any given year no way not acceptable not

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suitable not prudent or what about they're investing in a venture capital

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fund or a private equity fund that takes seven years or more before it normally

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even begins to distribute IPO sales or proceeds so no in seven years that [Woman counting cash]

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little old lady is more likely doing the backstroke 24 by 7 yeah well

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recommending venture capital investments to a little old lady who needs cash [Old lady and little pooch graves]

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liquidity to make payments on her dentures is an unsuitable recommendation

01:06

you can't do that so what's prudent or suitable for her well bonds government

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bonds shaken not stirred maybe a few corporate bonds and maybe a spicy 10 or [old lady's portfolio piechart appears]

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maybe 20% of her portfolio allocated to equities with a lot of safe boring

01:22

dividend yield think companies like AT&T and GE and IBM oil companies a whole lot

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of nice boring math on her way to the grave then what if the client is a [Insurance company man approaches girl with cheque]

01:33

parentless teenager who just inherited a million bucks from mom and dad courtesy

01:39

of the insurance company of the drunk driver who killed them both when they [Police sirens appear]

01:43

cross the double yellow line should that teen be in government bonds no that

01:48

would be unsuitable at least not all in government bonds in fact probably very

01:52

little in government bonds why well for that teen a heaping allocation to a

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small calf equity fund is totally prudent appropriate and smart because [Equity fund growth graph appears]

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that teen likely has decades maybe even half a century before she'll want to

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call or use that money so time will bail her out of the year-to-year short-term

02:12

volatility because over time the market goes up and

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usually a lot let's gaze for a moment on this beautiful S&P 500 stock chart for [Stock chart for S&P 500]

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glassed-in and give her to take century kind of lovely well the basic idea for

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this rule is that the financial advisor has to recommend investments that are [Financial advisor reading piece of paper]

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prudent and appropriate given the client's age health financial needs

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appetite for risk their own career strength likelihood of being abducted by

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aliens etc and a time at which point they'll need to turn their investments [Alien spacecraft hangs over city]

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into cash to pay for stuff well the good financial adviser knows her client and

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there actually is a rule called the know your client rule but you can only know

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them so well before you start you know crossing the lines [Man sleeping and woman lying awake in bed]

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