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
A client instructs an adviser to concentrate their entire portfolio in a single speculative stock. How should an ethical adviser respond?
Answer: Explain the risks, document the conversation, and follow client instructions if the client persists and is informed
After thoroughly explaining the risks and documenting the discussion, an adviser may follow an informed client's explicit instructions, as client autonomy is respected once suitability concerns are disclosed.
Which US regulation requires broker-dealers to act in the 'best interest' of retail customers when making securities recommendations?
Answer: SEC Regulation Best Interest (Reg BI)
SEC Regulation Best Interest (Reg BI), effective June 2020, requires broker-dealers to act in the best interest of retail customers when making recommendations, beyond just suitability.
What is the primary purpose of a firm's compliance manual in an investment advisory context?
Answer: To set guidelines that help employees meet legal and ethical obligations
A compliance manual establishes written policies and procedures to help firm employees meet their regulatory and ethical obligations, reducing the risk of violations.
Which behavior violates the prohibition against market manipulation under US securities law?
Answer: Spreading false information to artificially inflate a stock price
Spreading false or misleading information to artificially move security prices constitutes market manipulation, which is illegal under the Securities Exchange Act of 1934.
An investment professional maintains personal trading records for a minimum of how many years under FINRA recordkeeping rules?
Answer: 3 years
FINRA and SEC rules generally require broker-dealers to maintain books and records for a minimum of three years, with some records kept for six years.
Which ethical principle requires investment professionals to use accurate data and avoid misrepresenting their qualifications or firm capabilities?
Answer: Professionalism and Misrepresentation Standard
The misrepresentation standard requires professionals to use accurate, complete information and prohibits false statements about qualifications, services, or performance.