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
Under the Investment Advisers Act of 1940, an investment adviser has a fiduciary duty to act in the best interest of whom?
Answer: The client
Investment advisers owe a fiduciary duty to their clients, requiring them to act in the client's best interest at all times.
Which of the following best describes a conflict of interest for an investment adviser?
Answer: Receiving undisclosed compensation for recommending a specific fund
Receiving undisclosed compensation for recommending specific products creates a conflict of interest that must be disclosed to clients.
An investment adviser who breaches their fiduciary duty by placing their own interests ahead of clients may be subject to what action?
Answer: Civil liability and potential regulatory sanctions
Breaching fiduciary duty can result in civil lawsuits from clients and regulatory enforcement actions including fines and license revocation.
The duty of loyalty under fiduciary standards requires an investment adviser to:
Answer: Avoid or disclose all conflicts of interest
The duty of loyalty requires advisers to avoid or fully disclose conflicts of interest so clients can make informed decisions.
Which document is primarily used by registered investment advisers to disclose conflicts of interest, fees, and services to clients?
Answer: Form ADV Part 2
Form ADV Part 2 (the brochure) is the disclosure document investment advisers must provide to clients, covering fees, conflicts, and services.
An investment adviser discovers a material error in a client's portfolio report. Ethical conduct requires the adviser to:
Answer: Immediately correct and disclose the error to the client
Ethical and fiduciary standards require prompt disclosure and correction of material errors that affect a client's investment decisions.