Client Advisory & Ethical Practices Flashcards
7 cards from real AIP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Client Advisory & Ethical Practices flashcards as text
Under Regulation Best Interest (Reg BI), broker-dealers are required to act in the best interest of retail customers at the time of a recommendation. Which factor MOST distinguishes Reg BI from a full fiduciary standard?
Answer: Reg BI requires best interest at point of sale but does not impose an ongoing monitoring obligation
Reg BI establishes a best-interest standard at the time of recommendation without creating a continuous duty to monitor, unlike a comprehensive fiduciary obligation.
A client is 68 years old with a fixed income and low risk tolerance. An advisor recommends a variable annuity with a 7-year surrender period. Which ethical principle is MOST likely being violated?
Answer: Suitability
Recommending a long surrender-period product to an elderly, low-risk-tolerance client with fixed income likely violates suitability requirements.
An advisor learns material non-public information about a company from a client who is a corporate executive. The advisor's ethical obligation is to:
Answer: Refrain from trading on the information and consult compliance immediately
Trading on material non-public information is illegal under insider trading laws regardless of the source, and must be reported to compliance.
When performing a needs analysis for a client, which element is LEAST relevant to determining appropriate investment recommendations?
Answer: The advisor's quarterly revenue targets
Investment recommendations must be driven entirely by client needs, not by the advisor's revenue or compensation targets.
A client verbally authorizes a trade over the phone but declines to sign a written confirmation. Under best practices for documentation, the advisor should:
Answer: Proceed with the trade and send a written record of the verbal authorization to the client
Verbal authorizations should be executed per the client's instruction with contemporaneous written documentation sent to the client for their records.
Which of the following is a hallmark characteristic of a fiduciary relationship in investment advisory practice?
Answer: The advisor is obligated to put the client's interests ahead of their own
The defining characteristic of a fiduciary is the legal and ethical obligation to prioritize the client's interests above all others.
An advisor recommends a mutual fund that is virtually identical to a lower-cost alternative but pays the advisor a higher 12b-1 fee. This situation BEST illustrates:
Answer: A conflict of interest that must be disclosed and managed
Recommending higher-cost products that generate greater advisor compensation when lower-cost equivalents exist represents a conflict of interest requiring disclosure.