CRPC - Chartered Retirement Planning Counselor Ethical and Fiduciary Duties Questions and Answers

Question 1

A CRPC® is meeting with a new retirement planning client.
The advisor recommends a specific managed mutual fund that aligns with the client's risk tolerance.
However, a nearly identical, lower-cost index fund (ETF) exists that would also meet the client's objectives.
The managed fund pays the advisor's firm a 12b-1 fee, while the ETF does not.
Under the fiduciary duty of loyalty, what is the primary ethical issue in this situation?

Accepted Answer

A conflict of interest exists where the advisor's compensation may have improperly influenced the investment recommendation.

Answer

The advisor failed to recommend a sufficiently diversified portfolio.

Answer

The advisor is recommending an actively managed fund, which is inherently riskier than a passive index fund.

Answer

The client was not given a formal, written financial plan before the recommendation was made.

Question 2

Which of the following is a core component of the fiduciary 'duty of prudence'?

Accepted Answer

Acting with the care, skill, and diligence that a knowledgeable professional would use in similar circumstances.

Answer

Ensuring all material conflicts of interest are disclosed to the client.

Answer

Placing the client's interests above the interests of the advisor and their firm.

Answer

Executing all of a client's lawful and reasonable instructions as instructed.

Question 3

A CRPC®, who is also a registered representative of a broker-dealer, recommends a client purchase a variable annuity. Under the SEC's Regulation Best Interest (Reg BI), which of the following actions is required to satisfy the 'Care Obligation'?

Accepted Answer

Having a reasonable basis to believe the annuity is in the client's best interest and considering reasonably available alternatives.

Answer

Guaranteeing that the annuity will outperform the client's previous investments.

Answer

Disclosing in writing that the advisor will receive a commission from the sale.

Answer

Providing the client with the prospectuses of at least three different annuity providers.

Question 4

A client is considering rolling over their 401(k) from a previous employer into an IRA managed by their CRPC®. This transaction would move the client from a low-cost plan protected by ERISA to an IRA where the advisor will earn an asset-based fee. Under current Department of Labor (DOL) guidance, what is the advisor's MOST critical responsibility?

Accepted Answer

To document the specific reasons why the rollover is in the client's best interest, considering factors like costs, services, and investment options.

Answer

To ensure the IRA offers a wider selection of investment choices than the 401(k).

Answer

To advise the client to wait until they are at least age 59.5 to avoid penalties.

Answer

To get written permission from the former employer's plan administrator before proceeding.

Question 5

A client gives their CRPC® a direct and lawful instruction to sell a specific stock from their advisory account, even though the advisor believes it is a poor long-term decision. The advisor has clearly communicated their opposing view and the potential negative consequences. Under the advisor's fiduciary duties, what is the most appropriate next step?

Accepted Answer

Execute the client's instruction as requested.

Answer

Refuse to make the trade because it is not in the client's best interest.

Answer

Sell only half of the position as a compromise.

Answer

Inform the client that the advisor must first get approval from their firm's compliance department.

Question 6

All of the following are potential breaches of an advisor's fiduciary duty EXCEPT:

Accepted Answer

Conducting a quarterly portfolio rebalance to bring asset allocations back in line with the client's documented investment policy statement.

Answer

Failing to disclose that the advisor's firm will receive a higher fee for recommending an affiliated mutual fund.

Answer

Allocating a favorable IPO investment to a large institutional client instead of a smaller retail client for whom it was also suitable.

Answer

'Reverse churning,' where a client pays a consistent asset-based fee in an account with very little trading activity.