A registered representative recommends a complex, leveraged ETF to a retail customer as part of a long-term buy-and-hold strategy. When a supervising principal reviews this recommendation for compliance with Regulation Best Interest's Care Obligation, the principal should confirm primarily that the representative:

Understood the potential risks, rewards, and costs of the recommendation and had a reasonable basis to believe it was suitable given the customer's investment profile

A registered representative's conduct has triggered a red flag requiring heightened supervision. What should the resulting heightened supervision plan look like under FINRA guidance?

Specific, tailored measures such as more frequent supervisory review of correspondence and trade activity, documented and communicated to the representative

Surveillance finds that one representative placed 75% of several conservative retirees' accounts in a single speculative issuer over two weeks. What is the best immediate principal response?

Investigate suitability/Reg BI concerns, customer circumstances and possible unauthorized or excessive trading, with documented remediation.

Under FINRA Rule 3110(a)(7), what is the primary purpose of a firm's mandatory annual compliance meeting with its registered persons?

To discuss compliance matters relevant to the activities of the registered person

In reviewing several active retail accounts for potential excessive trading (churning), a principal notes unusually high turnover ratios and cost-to-equity ratios. Which combination of factors would most strongly support a finding that churning occurred, rather than merely aggressive but permissible trading?

Trading that is excessive in light of the customer's investment objectives and financial situation, representative control over the account (whether formal discretion or de facto control), and intent to generate commissions rather than to benefit the customer.

A large broker-dealer has written supervisory procedures for trade reviews, but testing finds that exceptions are closed without evidence and branch reports are never independently assessed. The business head argues that the existence of a written manual is sufficient. What should the principal do?

Require risk-based tests of whether controls operate, document findings, assign remediation owners and report material gaps through supervisory channels.

An older customer provides a trusted-contact person but refuses to give that person trading authority. What may the firm infer?

A trusted contact is not an authorized trader or power of attorney by virtue of the designation

Series 24 Sales Practice Supervision Practice Questions

Official outline: FINRA Series 24 Content Outline
Questions on this page: 8
Updated: Nov 3, 2026

Question 1, medium
A registered representative recommends a complex, leveraged ETF to a retail customer as part of a long-term buy-and-hold strategy. When a supervising principal reviews this recommendation for compliance with Regulation Best Interest's Care Obligation, the principal should confirm primarily that the representative:
- A.Verified the product's compensation to the firm is competitive with similar products offered by other firms
- B.Confirmed that a majority of the firm's other retail customers hold a similar position
- C.Obtained the customer's signature on a generic risk-disclosure acknowledgment form
- D.Understood the potential risks, rewards, and costs of the recommendation and had a reasonable basis to believe it was suitable given the customer's investment profile
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Correct answer: D. Understood the potential risks, rewards, and costs of the recommendation and had a reasonable basis to believe it was suitable given the customer's investment profile
The Care Obligation under Reg BI requires a recommendation be based on an understanding of the potential risks, rewards, and costs of the security or strategy, evaluated against the customer's investment profile (age, financial situation, experience, time horizon, risk tolerance, and objectives). A leveraged ETF held long-term carries compounding/decay risk often mismatched with a buy-and-hold objective, so that substantive analysis is what supervision must confirm.
- A. Incorrect. Comparing compensation across competing products relates to the Conflict of Interest Obligation, not the Care Obligation's substantive suitability analysis.
- B. Incorrect. Other customers' holdings have no bearing on whether the recommendation is suitable for this particular customer's profile.
- C. Incorrect. A signed acknowledgment form documents disclosure but does not itself satisfy the duty to perform and evidence a substantive suitability analysis.
- D. Correct. This is the core of the Care Obligation: understanding risk/reward/cost and matching it to the customer's specific investment profile.
- Source: SEC Regulation Best Interest (17 CFR 240.15l-1), accessed October 2026
Question 2, medium
A registered representative's conduct has triggered a red flag requiring heightened supervision. What should the resulting heightened supervision plan look like under FINRA guidance?
- A.Automatic statutory disqualification and immediate termination of the representative
- B.Removal of the representative from all client contact for a minimum of two years
- C.Specific, tailored measures such as more frequent supervisory review of correspondence and trade activity, documented and communicated to the representative
- D.Placing the representative under the electronic communications 'taping rule' requirements applicable to designated 'taping firms,' regardless of the firm's own classification
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Correct answer: C. Specific, tailored measures such as more frequent supervisory review of correspondence and trade activity, documented and communicated to the representative
FINRA guidance describes heightened supervision plans as individualized, written, and reasonably tailored to the specific risk presented. Commonly including more frequent or granular review of correspondence, order tickets, or trade blotters, closer branch manager involvement, and documented sign-off. It is not an automatic statutory disqualification event, does not require a fixed multi-year removal from client contact, and does not trigger Rule 3170's taping rule, which applies only to firms meeting specific hiring-history criteria. Not to an individual rep with a complaint history.
- A. A red flag triggering heightened supervision does not equate to statutory disqualification, which is a distinct, narrowly defined legal status (e.g., certain convictions, bars); termination is not an automatic or required response.
- B. FINRA guidance does not mandate a fixed two-year removal from client contact; the response should be tailored to the specific conduct and risk presented, not a one-size-fits-all suspension period.
- C. Heightened supervision plans must be individualized to the representative's specific red flag, with concrete, documented measures (e.g., increased correspondence and trade review frequency) communicated to the rep and monitored for effectiveness.
- D. The taping rule applies only to firms independently meeting the hiring-pattern thresholds that make them 'taping firms' under Rule 3170; a single rep's red flag does not import taping obligations onto a firm that isn't otherwise subject to that rule.
- Source: Exam outline: FINRA Series 24 Content Outline, accessed October 2026
Question 3, medium
Surveillance finds that one representative placed 75% of several conservative retirees' accounts in a single speculative issuer over two weeks. What is the best immediate principal response?
- A.Investigate suitability/Reg BI concerns, customer circumstances and possible unauthorized or excessive trading, with documented remediation.
- B.Send the representative a written reminder about concentration and defer any review of the accounts to the next scheduled branch examination.
- C.Contact the affected customers to confirm they are comfortable with the positions and close the matter if they verbally agree.
- D.Restrict the representative's trading authority right away and treat the restriction as the full response, without reviewing the accounts or customer profiles.
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Correct answer: A. Investigate suitability/Reg BI concerns, customer circumstances and possible unauthorized or excessive trading, with documented remediation.
Heavy concentration of conservative retirees in one speculative issuer is a red flag for best-interest and suitability problems. The principal should review promptly, document findings and remediate.
- A. The pattern calls for prompt investigation of best interest, customer profiles and trading authority, with documented action.
- B. A routine reminder and a wait for the next exam is too passive. A 75% concentration in one speculative issuer across several conservative retirees' accounts is a red flag that needs prompt review, not deferral to a scheduled cycle.
- C. Verbal customer comfort does not satisfy the Reg BI care obligation. The principal must still review whether the recommendations were in each customer's best interest, and must look at the representative's conduct and trading authority. A phone call that closes the matter skips that review and leaves no documented basis.
- D. Restricting the representative may be a reasonable interim step, but it is not a complete response. Without reviewing the accounts, customer profiles and the basis for the trades, the firm cannot determine harm, fix customer positions or document remediation.
- Source: FINRA Rule 3110 (Supervision), accessed October 2026
- Source: SEC Regulation Best Interest (17 CFR 240.15l-1), accessed October 2026
Question 4, easy
Under FINRA Rule 3110(a)(7), what is the primary purpose of a firm's mandatory annual compliance meeting with its registered persons?
- A.To review the registered person's compensation and production goals for the upcoming year
- B.To discuss compliance matters relevant to the activities of the registered person
- C.To administer the Regulatory Element of continuing education
- D.To have the registered person re-execute their Form U4 attestations
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Correct answer: B. To discuss compliance matters relevant to the activities of the registered person
Rule 3110(a)(7) mandates an annual compliance meeting (which may be conducted in person or through interactive electronic means) at which registered persons discuss compliance matters relevant to their activities, such as sales practices, supervision, and recordkeeping obligations. It is not a compensation review, a Regulatory Element CE session (a separate, distinct requirement), and it does not involve re-executing Form U4.
- A. The annual compliance meeting is not a venue for compensation or production-goal discussions; conflating it with a business-planning meeting misses the rule's compliance focus.
- B. Correct. Rule 3110(a)(7) requires the meeting to address compliance matters relevant to the registered person's activities, tailoring the discussion to the risks of that individual's business.
- C. Administering the Regulatory Element is a separate continuing education obligation under the CE rules, distinct from the annual compliance meeting requirement.
- D. Re-executing Form U4 attestations is not the purpose of the annual compliance meeting; U4 amendments are handled through separate registration update procedures.
- Source: FINRA Rule 3110 (Supervision), accessed October 2026
Question 5, hard
In reviewing several active retail accounts for potential excessive trading (churning), a principal notes unusually high turnover ratios and cost-to-equity ratios. Which combination of factors would most strongly support a finding that churning occurred, rather than merely aggressive but permissible trading?
- A.High commissions generated relative to account equity, even where the customer independently authorized every individual trade in advance and the representative exercised no discretion or influence over the account's activity.
- B.Trading that is excessive in light of the customer's investment objectives and financial situation, representative control over the account (whether formal discretion or de facto control), and intent to generate commissions rather than to benefit the customer.
- C.A single large transaction that produced a substantial loss for the customer, particularly where the representative recommended the position and it was sold at a loss shortly after purchase.
- D.Trading frequency alone, such as a high annual turnover ratio, without regard to who controls the trading decisions in the account or whether the representative intended to generate commissions.
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Correct answer: B. Trading that is excessive in light of the customer's investment objectives and financial situation, representative control over the account (whether formal discretion or de facto control), and intent to generate commissions rather than to benefit the customer.
Churning requires three elements: (1) trading excessive in light of the customer's objectives and financial situation, (2) control of the account by the representative (either formal discretionary authority or de facto control, e.g., a customer who reflexively follows recommendations), and (3) scienter. Intent to generate commissions at the customer's expense. High cost-to-equity and turnover ratios are quantitative red flags, but a finding of churning also requires evidence of control and intent, not turnover numbers alone.
- A. Incorrect alone. High commissions are a red flag, but without control by the representative (the customer approved each trade and was not influenced), the control element of churning is missing.
- B. Correct. This captures all three required elements: excessive trading, control, and intent.
- C. Incorrect. A single loss-making transaction, even if recommended, does not establish the pattern of excessive, controlled trading that churning requires.
- D. Incorrect. Frequency alone, without the control and intent elements, does not establish churning.
- Source: Exam outline: FINRA Series 24 Content Outline, accessed October 2026
Question 6, medium
A large broker-dealer has written supervisory procedures for trade reviews, but testing finds that exceptions are closed without evidence and branch reports are never independently assessed. The business head argues that the existence of a written manual is sufficient. What should the principal do?
- A.Accept the manual as proof of compliance, since the firm has documented procedures covering each trade review.
- B.Replace written procedures with informal monthly calls between the business head and the branch managers.
- C.Require risk-based tests of whether controls operate, document findings, assign remediation owners and report material gaps through supervisory channels.
- D.Stop reviewing controls whenever an external auditor has issued an unqualified financial statement opinion, because that audit also covers supervisory effectiveness.
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Correct answer: C. Require risk-based tests of whether controls operate, document findings, assign remediation owners and report material gaps through supervisory channels.
Written procedures are necessary but not sufficient. Supervisory controls must be reasonably designed, implemented, tested and corrected when they prove ineffective, with findings documented and escalated. A financial-statement audit does not substitute for broker-dealer supervision.
- A. Having a manual does not show the controls operate; testing found exceptions closed without evidence.
- B. Informal calls are not a documented, reasonably designed supervisory system and would weaken oversight.
- C. Risk-based testing of control operation, documented findings, assigned remediation and escalation is what an effective supervisory control system requires.
- D. A financial-statement audit addresses financial reporting, not the effectiveness of broker-dealer supervisory controls.
- Source: FINRA Rule 3110 (Supervision), accessed October 2026
Question 7, easy
An older customer provides a trusted-contact person but refuses to give that person trading authority. What may the firm infer?
- A.A trusted contact is not an authorized trader or power of attorney by virtue of the designation
- B.Routine account communications must be sent to the trusted contact before they are sent to the customer
- C.The trusted contact becomes a co-owner of the account by virtue of the designation
- D.The trusted contact can request withdrawals of assets when the customer is unavailable
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Correct answer: A. A trusted contact is not an authorized trader or power of attorney by virtue of the designation
A trusted contact is a person the firm may contact about the customer's well-being or to confirm certain facts. The designation conveys no trading authority, ownership or power of attorney.
- A. Correct: a trusted contact is a protective contact point, not an agent with trading or withdrawal authority.
- B. The firm may contact the trusted contact in limited circumstances, but communications are still directed to the customer.
- C. Designation as a trusted contact creates no ownership interest in the account.
- D. The trusted contact has no authority to request or direct withdrawals.
- Source: FINRA Rule 4512, accessed October 2026
Question 8, medium
A representative believes an 82-year-old customer is being exploited by a caregiver who requested a $40,000 disbursement. The firm reasonably concludes exploitation is likely and places a temporary hold under FINRA Rule 2165. Absent extension, how long may the initial hold last?
- A.10 business days
- B.15 calendar days
- C.15 business days
- D.30 business days
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Correct answer: C. 15 business days
Rule 2165 allows a firm to place a temporary hold on a disbursement from the account of a specified adult when it reasonably believes financial exploitation is occurring. The hold expires no later than 15 business days after the firm first placed it, subject to defined extensions.
- A. Ten business days is shorter than the rule's initial period.
- B. The period is measured in business days, not calendar days.
- C. Correct: the initial hold may last up to 15 business days.
- D. Thirty business days is not the initial period; any longer hold requires an extension under the rule.
- Source: FINRA Rule 2165, accessed October 2026

Sources

SEC Regulation Best Interest (17 CFR 240.15l-1), checked October 2026
FINRA Rule 3110 (Supervision), checked October 2026
FINRA Rule 4512, checked October 2026
FINRA Rule 2165, checked October 2026

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