AIFA AIFA Ethics & Professional Standards 2

Question 1

Which of the following actions violates the 'fair dealing' standard in investment management?

Accepted Answer

Providing hot IPO shares preferentially to large-fee clients

Answer

Fair dealing prohibits selective allocation of investment opportunities based on client profitability or fee generation, requiring equitable treatment across all clients.

Question 2

A financial adviser receives a gift from a vendor that could influence their objectivity. Under US ethical standards, what is the most appropriate response?

Accepted Answer

Disclose the gift to the employer and follow the firm's gift policy

Answer

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.

Question 3

Under the Investment Advisers Act of 1940, registered investment advisers in the US owe clients which standard of care?

Accepted Answer

Fiduciary standard

Answer

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.

Question 4

What is 'churning' in the context of investment management ethics?

Accepted Answer

Excessive trading in a client account to generate commissions

Answer

Churning refers to excessive trading in a client account primarily to generate commissions for the broker, violating fiduciary and suitability obligations.

Question 5

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?

Accepted Answer

Disclosure of conflicts of interest

Answer

Investment professionals must disclose any ownership interests or conflicts of interest that could bias their research or recommendations.

AIFA - Applied Investment & Finance Analyst Practice Test

AIFA - Applied Investment & Finance Analyst Practice Test

AIFA AIFA Ethics & Professional Standards 2