Ethics and Professional Standards Flashcards
6 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Ethics and Professional Standards flashcards as text
Under the Investment Advisers Act of 1940, investment advisers registered with the SEC must provide clients with:
Answer: Form ADV Part 2 (the adviser brochure) disclosing fees, services, and conflicts
SEC-registered investment advisers must deliver Form ADV Part 2 to clients, disclosing material information about the adviser's business, fees, conflicts of interest, and disciplinary history.
The 'suitability' standard historically applied to broker-dealers differs from the 'fiduciary' standard in that suitability:
Answer: Requires only that recommendations be appropriate for the client at the time, not necessarily the best option
Under the traditional suitability standard, a broker needs only to show a recommendation was appropriate given client circumstances, while fiduciary duty demands the best available option for the client.
When a financial planner learns that a client is engaged in financial elder abuse against a family member, the planner's primary ethical obligation is to:
Answer: Report it to appropriate authorities and consider withdrawing from the engagement
Facilitating or concealing elder financial abuse violates ethical and potentially legal obligations; planners should report suspected abuse to adult protective services or law enforcement.
Regulation Best Interest (Reg BI) requires broker-dealers, when making a recommendation, to act in the:
Answer: Best interest of the retail customer, placing their interest ahead of the firm's
SEC Reg BI requires broker-dealers to act in the retail customer's best interest at the time of a recommendation and not place their own financial interests ahead of the client's.
A financial professional who uses client funds for personal investments without authorization is guilty of:
Answer: Misappropriation (embezzlement)
Misappropriation of client funds for personal use constitutes embezzlement — a serious ethical violation and criminal offense that permanently damages professional standing.
Front-running by a financial adviser refers to:
Answer: Trading in a security for personal accounts ahead of executing a large client order in the same security
Front-running involves trading for one's own account based on advance knowledge of pending client orders, exploiting non-public order-flow information for personal gain.