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
The duty of loyalty in financial planning requires professionals to:
Answer: Subordinate personal interests and conflicts to the client's interests
The duty of loyalty means the adviser must prioritize the client's interests over personal, firm, or third-party interests that could compromise objectivity.
A planner who discovers an error in a prior recommendation that harmed the client is ethically required to:
Answer: Disclose the error to the client promptly and work to correct it
Prompt disclosure of material errors that affected client outcomes is required under professional ethics standards, and the adviser should take corrective action where possible.
Which practice violates the churning prohibition applicable to financial advisers?
Answer: Frequently trading a client's account to generate commissions rather than for investment merit
Churning occurs when excessive trading is conducted in a client's account primarily to generate commissions, violating both suitability/fiduciary standards and SEC regulations.
Under FINRA rules, a registered representative must disclose outside business activities (OBAs) to their member firm because:
Answer: The firm has supervisory responsibility and must assess conflicts with client interests
FINRA requires OBA disclosure so firms can evaluate whether the activity creates conflicts of interest with clients or involves securities-related business requiring supervision.
A CFC following the IACFP Code of Ethics must give priority to which obligation when a conflict arises between client interests and regulatory requirements?
Answer: Compliance with laws and regulations takes priority, after which client interests are paramount
Professional codes universally place legal and regulatory compliance first; advisers cannot violate the law in the name of client loyalty, but beyond legal compliance, client interests come first.
The practice of 'selling away' — transacting securities business outside the broker-dealer without firm approval — violates:
Answer: FINRA Rule 3280 and the representative's employment agreement
FINRA Rule 3280 prohibits registered representatives from participating in private securities transactions outside their firm without prior written notice and approval from the firm.