Quick Answer
No securities professional may guarantee a customer against loss, in any account, in any transaction, in any form. There is no exception for any registrant type. Quoting a bond's stated coupon is a fact about the issuer's obligation, not a guarantee, and that distinction is what the exam actually tests.
A short unit on one absolute rule, and on the disguises the exam dresses it in.
Who Does the Prohibition Bind?
- Every securities professional: broker-dealers, agents, investment advisers, and IARs alike.
- There is no exception for a wealthy client, a sophisticated client, or a written client request.
- The rule covers any account and any transaction, not only recommended trades.
- Promising a specific return is the same violation as promising no loss.
What Counts as a Guarantee?
- A direct promise: "you cannot lose money on this."
- An implicit one: "I'll make up any losses out of my own pocket."
- A promise to repurchase the security at the customer's original cost if it declines.
- An assurance that the firm's size, insurance, or track record makes a loss impossible.
What Is NOT a Guarantee?
- A bond's stated coupon. "This bond pays 5% per year" describes the issuer's contractual obligation and is a factual statement.
- A fixed annuity's guaranteed rate, which is the insurer's promise rather than the agent's.
- Accurate historical performance, provided it is not presented as a prediction.
Which Gotchas Are Tested Most?
- A customer's consent never cures it. The customer cannot waive the prohibition, and asking for the guarantee does not make it lawful.
- Guaranteeing is not the same violation as sharing in a customer's profits and losses. Sharing is permitted with the two written authorizations; guaranteeing is never permitted at all.
- Watch the repurchase promise. It is the most common disguise, because it sounds like a service rather than a guarantee.
- The professional's own funds are irrelevant. Covering a loss personally is still a guarantee against loss.
One-Breath Recap
No securities professional may guarantee a customer against loss or promise a specific return, in any account or transaction, and no client consent creates an exception. The exam disguises it as a promise to repurchase at cost, or an offer to cover a decline personally. Quoting a bond's stated coupon is not a guarantee, because it states the issuer's obligation rather than the professional's promise.
Need more than the recap? Read the full Performance Guarantees Prohibition unit.