CFS Ethics & Professional Responsibility 5

Question 1

An advisor rolls a client's low-cost 401(k) into a higher-cost IRA mainly to earn fees, without considering the plan's advantages. This is a concern because:

Accepted Answer

Rollover recommendations must be in the client's best interest and compare costs and services

Answer

Regulators require advisors to compare fees, services, and investment options before recommending a rollover, and to put the client's interest first.

Question 2

Which practice best manages a conflict of interest when a firm pays higher commissions on its proprietary funds?

Accepted Answer

Disclose the incentive and recommend proprietary funds only when they are in the client's best interest

Answer

Conflicts must be disclosed and either mitigated or eliminated so that compensation does not put the firm's interest ahead of the client's.

Question 3

Before recommending a fund, a representative must understand its risks and features well enough to know it is suitable for at least some investors. This is:

Accepted Answer

Reasonable-basis suitability

Answer

Reasonable-basis suitability requires reasonable diligence to understand a product before recommending it to anyone.

Question 4

Under FINRA Rule 3220, the annual limit on gifts a representative may give to an employee of another firm in relation to that firm's business is:

Accepted Answer

$300 per person per year

Answer

FINRA amended Rule 3220 in 2025 to raise the gift limit from $100 to $300 per person per year.

Question 5

An advisor guarantees a client that a stock fund will not lose value over the next year. This is:

Accepted Answer

A prohibited guarantee against loss

Answer

Representatives may not guarantee a customer against loss in connection with securities transactions.

CFS - Certified Fund Specialist Practice Test

CFS - Certified Fund Specialist Practice Test

CFS Ethics & Professional Responsibility 5