Series 65: Loans To And From Clients

Taken from our Series 65 Online Guide

Loans to and From Clients

While it might come as a surprise, one of the more common ethical violations is an investment adviser, IAR, or agent loaning money to or borrowing money from clients. When you stop to think about it, it’s not hard to imagine why this temptation is so common. Financial professionals often have intimate knowledge about the finances of their clients, including when their clients have extra money lying around or are short of needed cash. In these situations, professionals without clear boundaries might see an opportunity to borrow money at a favorable rate from their clients or lend out their money at rates better than what they’d get through other opportunities.

While this may be beneficial for the professional, and even appear beneficial for the client, it puts the client at risk of an unfair transaction and even a substantial loss. Thus, neither an IA nor IAR is permitted to borrow from a client, unless that client is:

  • A broker-dealer
  • An affiliate of the investment adviser
  • A lending institution that actively engages in lending money as part of its business

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