Financial Industry Regulatory Authority (FINRA) Practice Exam

Which of the following best describes a characteristic of retail investors?

1. They only invest through institutions

2. They purchase securities for personal accounts

3. They are always accredited

4. They only engage in high-risk investments

The correct answer is: They purchase securities for personal accounts

The characteristic that best describes retail investors is that they purchase securities for personal accounts. Retail investors are typically individuals who invest their personal funds directly in securities, such as stocks, bonds, or mutual funds, for their own benefit. This distinguishes them from institutional investors, like banks or pension funds, which manage large pools of money on behalf of others. Retail investors do not exclusively use institutional channels for their investments, and they come from a wide variety of financial backgrounds, meaning they are not always accredited or limited to high-risk investments. Instead, retail investors can engage in a variety of investment strategies, ranging from conservative to aggressive, depending on their risk tolerance and financial goals. Thus, the option that identifies their nature as purchasers of securities for their personal accounts accurately captures the essence of who retail investors are.