CES Ethics & Legal Compliance 3 — Questions and Answers
Question 1: A CES practitioner receives a gift worth $300 from a grateful estate client. Under most professional ethics codes, what is the best course of action?
- Accept it as a token of appreciation since it is under $500
- Decline it to avoid any appearance of impropriety or conflict of interest
- Accept and disclose it to the firm's compliance department (Correct answer)
- Return it only if the client is still an active client
Correct answer: Accept and disclose it to the firm's compliance department
Most compliance frameworks require disclosure of gifts above de minimis thresholds; accepting without disclosure is improper.
Question 2: Which federal law imposes a fiduciary standard on financial advisors who manage retirement plan assets within estates?
- The Securities Exchange Act of 1934
- ERISA (Employee Retirement Income Security Act) (Correct answer)
- The Investment Advisers Act of 1940
- The Uniform Trust Code
Correct answer: ERISA (Employee Retirement Income Security Act)
ERISA governs retirement plan assets and imposes strict fiduciary duties on those managing such assets.
Question 3: An estate planning client asks a CES professional to back-date a document to qualify for a tax benefit that has already expired. The practitioner should:
- Comply if the client signs an indemnification agreement
- Refuse because backdating documents constitutes fraud (Correct answer)
- Consult a tax attorney before deciding
- Comply only if the tax savings benefit the heirs
Correct answer: Refuse because backdating documents constitutes fraud
Backdating documents to misrepresent dates for tax purposes is fraudulent and violates both legal and ethical standards.
Question 4: The 'no further inquiry' rule in trust law applies most directly to which situation?
- When a trustee makes investments without consulting beneficiaries
- When a trustee engages in a transaction that benefits themselves at trust expense (Correct answer)
- When beneficiaries disagree on distribution timing
- When the trust document is ambiguous about investment authority
Correct answer: When a trustee engages in a transaction that benefits themselves at trust expense
The no-further-inquiry rule presumes a conflict-of-interest transaction is a breach without requiring proof of actual harm.
Question 5: A CES practitioner suspects a client may be the victim of financial elder abuse by a family member. What is the appropriate first step?
- Confront the suspected abuser directly
- Report suspicions to Adult Protective Services or the appropriate authority per applicable law (Correct answer)
- Transfer assets out of the family member's reach immediately
- Do nothing unless the client explicitly requests help
Correct answer: Report suspicions to Adult Protective Services or the appropriate authority per applicable law
Most states require or permit financial professionals to report suspected elder financial abuse to protective services.
Question 6: Which document must a trustee provide to beneficiaries under the Uniform Trust Code to fulfill the duty to inform and report?
- A copy of every investment research report reviewed
- Periodic accountings showing trust assets, income, expenses, and distributions (Correct answer)
- Annual tax returns filed for the trust
- Monthly market value statements for all securities
Correct answer: Periodic accountings showing trust assets, income, expenses, and distributions
The UTC requires trustees to provide regular accountings so beneficiaries can monitor administration.
Question 7: A CES professional serves as both a financial advisor and a trustee for the same client family. This arrangement primarily raises concerns about:
- Fee compression and reduced revenue
- Conflict of interest and divided loyalty between roles (Correct answer)
- Over-concentration of expertise
- Regulatory licensing requirements
Correct answer: Conflict of interest and divided loyalty between roles
Serving dual roles creates conflicts where the advisor's financial interests may diverge from fiduciary duties as trustee.
CES Ethics & Legal Compliance 3
A CES practitioner receives a gift worth $300 from a grateful estate client.
Under most professional ethics codes, what is the best course of action?