AIP Risk Assessment & Regulatory Compliance 4

Question 1

An investment adviser has a personal interest in recommending a particular mutual fund to clients. Under the Investment Advisers Act of 1940, the adviser's fiduciary duty requires which action?

Accepted Answer

Fully disclose the conflict of interest to clients

Answer

Under the fiduciary standard, advisers must fully disclose all material conflicts of interest so that clients can make informed decisions.

Question 2

Stress testing a portfolio involves which of the following analytical approaches?

Accepted Answer

Applying extreme but plausible hypothetical scenarios to assess potential losses

Answer

Stress testing evaluates portfolio performance under severe but plausible adverse conditions, such as a market crash or credit crisis, to identify vulnerabilities.

Question 3

Under the USA PATRIOT Act, financial institutions must establish a Customer Identification Program (CIP). At minimum, which piece of information must be collected for individual customers?

Accepted Answer

Social Security number, date of birth, name, and address

Answer

CIP requirements for individuals mandate collection of name, date of birth, address, and identification number (typically Social Security number) at a minimum.

Question 4

Which of the following best describes 'liquidity risk' for an investment fund?

Accepted Answer

The risk that the fund cannot meet redemption requests without selling assets at distressed prices

Answer

Liquidity risk is the risk that a fund cannot satisfy redemption demands promptly without incurring significant transaction costs or selling at below-market prices.

Question 5

FINRA's suitability rule (Rule 2111) includes three components of suitability analysis. Which of the following is one of those components?

Accepted Answer

Reasonable-basis suitability

Answer

FINRA Rule 2111 identifies three suitability components: reasonable-basis (the strategy is suitable for at least some investors), customer-specific (suitable for this particular customer), and quantitative (frequency of trades is suitable).

(AIP) Accredited Investment Professional Certification Practice Test

(AIP) Accredited Investment Professional Certification Practice Test

AIP Risk Assessment & Regulatory Compliance 4