Client Advisory & Ethical Practices Flashcards

A wealthy client asks an advisor to structure investments to minimize tax reporting obligations in ways the advisor believes may be illegal. The advisor should:

Answer: Refuse to implement the strategy and advise the client to seek legal counsel

Advisors must refuse to participate in strategies they believe are illegal and direct clients to appropriate legal counsel.

Under the CFA Institute Code of Ethics (which informs AIP standards), the term 'independence and objectivity' primarily means that investment professionals must:

Answer: Not accept gifts or compensation that could compromise their investment judgment

Independence and objectivity requires that advisors avoid any compensation or relationships that could bias their professional judgment.

An AIP advisor serves on the board of a public company. When advising clients on whether to invest in that company, the advisor MUST:

Answer: Disclose the board membership and any material non-public information constraints before advising

Advisors with potential conflicts of interest must disclose those conflicts to clients and manage information barriers appropriately.

A client's risk profile questionnaire indicates moderate risk tolerance. Which portfolio allocation MOST aligns with a suitability determination for this client?

Answer: A diversified mix of 60% equities and 40% fixed income

A balanced 60/40 portfolio of diversified equities and fixed income is the classic moderate-risk allocation aligning with moderate risk tolerance.

A client threatens to withdraw assets if the advisor does not recommend a speculative investment the advisor believes is unsuitable. The advisor's BEST course of action is to:

Answer: Explain the suitability concerns, document the discussion, and refuse the unsuitable recommendation

Client pressure, even including the threat of account closure, does not justify making unsuitable recommendations; the advisor must document and decline.

Which of the following actions BEST demonstrates an advisor's duty of care to clients?

Answer: Conducting thorough due diligence on investment recommendations and monitoring client portfolios

Duty of care requires advisors to diligently research recommendations and continuously monitor client portfolios against stated objectives.

Under AIP ethical standards, which action by an advisor would constitute a violation of client confidentiality?

Answer: Discussing a client's portfolio details with a colleague to obtain a second opinion without client consent

Sharing client details with colleagues without client consent for non-compliance purposes violates confidentiality obligations.