AIFA Ethics & Professional Standards Flashcards
6 cards from real AIFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 AIFA Ethics & Professional Standards flashcards as text
Which of the following actions violates the 'fair dealing' standard in investment management?
Answer: Providing hot IPO shares preferentially to large-fee clients
Fair dealing prohibits selective allocation of investment opportunities based on client profitability or fee generation, requiring equitable treatment across all clients.
A financial adviser receives a gift from a vendor that could influence their objectivity. Under US ethical standards, what is the most appropriate response?
Answer: Disclose the gift to the employer and follow the firm's gift policy
Gifts from vendors that could compromise objectivity must be disclosed to the employer, and the adviser must comply with the firm's established gift and entertainment policies.
Under the Investment Advisers Act of 1940, registered investment advisers in the US owe clients which standard of care?
Answer: Fiduciary standard
SEC-registered investment advisers are held to a fiduciary standard, requiring them to act in the client's best interest at all times, which is stricter than the suitability standard.
What is 'churning' in the context of investment management ethics?
Answer: Excessive trading in a client account to generate commissions
Churning refers to excessive trading in a client account primarily to generate commissions for the broker, violating fiduciary and suitability obligations.
An analyst publishes a research report with a buy recommendation. Unknown to readers, the analyst owns shares in the company. Which ethical standard is violated?
Answer: Disclosure of conflicts of interest
Investment professionals must disclose any ownership interests or conflicts of interest that could bias their research or recommendations.
Which of the following best describes the 'prudent investor rule' as applied to US fiduciaries?
Answer: Managing a portfolio with the care and skill of a prudent person seeking reasonable return with appropriate risk
The prudent investor rule requires fiduciaries to manage assets with the care, skill, and caution that a prudent person would exercise, balancing risk and return appropriately.