Uniform Securities Agent State Law (Series 63) Practice Exam

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What is a necessary disclosure when showing historical performance to investors?

It will guarantee future success
It must be accompanied by a legal disclaimer
It does not predict future results
It should include client testimonials

The correct answer is: It does not predict future results

When presenting historical performance data to investors, it is essential to include the disclaimer that past performance does not predict future results. This statement serves as a critical reminder to investors that while historical performance data can provide insights into how an investment has performed over time, it is not indicative of how the investment will perform in the future. Market conditions, economic environments, and various other factors can change, impacting future outcomes differently than those experienced in the past. This is particularly important in financial communications where investors might be tempted to rely heavily on historical performance figures as a basis for their investment decisions. By clarifying that past success does not ensure future success, financial professionals help promote a more realistic understanding of investment risks and the nature of market performance, thereby encouraging informed decision-making.