Fiduciary Duty and Ethics Flashcards
6 cards from real Investment Advisor practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Fiduciary Duty and Ethics flashcards as text
The 'duty of care' component of fiduciary responsibility requires an investment adviser to:
Answer: Make only recommendations suitable for the client's specific situation
The duty of care requires advisers to understand each client's financial situation and make recommendations that are genuinely suitable for that client.
Which practice violates an investment adviser's ethical obligations?
Answer: Churning a client's account to generate commissions
Churning — excessive trading to generate commissions — violates the adviser's duty of loyalty and care by prioritizing adviser income over client interests.
When an investment adviser has a personal financial interest in a security they recommend to clients, they must:
Answer: Disclose the personal interest before making the recommendation
Advisers must disclose any personal financial interest in securities they recommend so clients can assess potential bias.
Under the NASAA Model Rule, which unethical practice involves an adviser making false or misleading statements about a security?
Answer: Misrepresentation
Misrepresentation involves making false or misleading statements about securities and is explicitly prohibited under state and federal adviser regulations.
An adviser who makes trades in client accounts without authorization is committing what violation?
Answer: Unauthorized trading
Unauthorized trading occurs when an adviser executes trades in client accounts without obtaining proper client authorization.
An adviser learns that a client is being defrauded by another party. Ethical standards suggest the adviser should:
Answer: Notify the client and recommend appropriate action
An adviser's duty of loyalty and care includes protecting clients from known harm, requiring notification and guidance when fraud is discovered.