Investment Company and Variable Contracts Products Representative (Series 6) Practice Exam 2025 - Free Series 6 Practice Questions and Study Guide

The correct answer is specific identification because this method allows a client to identify and sell specific shares from their portfolio based on their original purchase costs and dates. When a client wants to determine which exact shares to sell, specific identification enables them to choose shares purchased at a certain time or price, which can be beneficial for tax planning purposes and managing capital gains or losses.

Using specific identification, the client can strategically sell shares that may have a higher or lower cost basis, thus affecting the tax implication of the sale. This method is particularly useful for clients holding multiple lots of the same security at different prices since it provides clarity and control over the investment disposition.

In contrast, average cost basis computes a single average cost for shares acquired over time, rather than allowing the selection of specific shares. Last-in, first-out (LIFO) and FIFO (first-in, first-out) methods are accounting techniques that dictate which shares are deemed to have been sold first, but they do not provide the granularity that specific identification does. By using specific identification, the client can optimize their sale to align with their financial or tax strategies.