What is the recommended approach for a dealer when conflicts arise from offering proprietary products in muni portfolios?

• A. Conceal the conflicts if the client asks for proprietary products.
• B. Only disclose conflicts if asked by the investor.
• C. Disclose conflicts, justify suitability, and offer independent alternatives when appropriate.
• D. Promote proprietary products as the sole option.

Answer: (C)

When a dealer has a potential conflict of interest from offering proprietary products in a muni portfolio, transparency and fair dealing are essential. The best approach is to disclose the conflicts, explain why the proposed investment is suitable for the investor’s goals and circumstances, and, when appropriate, present independent non-proprietary alternatives for comparison. This ensures the investor can evaluate the recommendation with full information and options, reducing bias and helping determine true suitability.

Concealing conflicts, or only disclosing them if asked, undermines trust and violates the obligation to provide full disclosure. Promoting proprietary products as the sole option ignores the investor’s need for comparables and alternatives. By openly disclosing conflicts, justifying suitability, and offering independent alternatives, the dealer aligns with prudent, customer-centered practice in municipal securities.