Client Communication and Disclosure Flashcards

Under SEC Regulation Best Interest (Reg BI), which disclosure document must broker-dealers provide to retail customers?

Answer: Form CRS (Customer Relationship Summary)

Reg BI requires broker-dealers to provide retail customers with a Form CRS summarizing the relationship and services offered.

A client asks why their portfolio underperformed the benchmark. The investment counselor's most appropriate response is to:

Answer: Provide a written attribution analysis explaining factor-level performance drivers

Transparent attribution analysis fulfills the counselor's duty to communicate clearly and honestly about portfolio performance.

Which of the following best describes 'informed consent' in the context of investment advisory relationships?

Answer: A client agreeing to terms after receiving full, clear disclosure of material facts

Informed consent requires the client to have received and understood all material information before agreeing to a course of action.

An investment counselor discovers a conflict of interest after an advisory relationship has already begun. The counselor should:

Answer: Disclose the conflict promptly and obtain the client's consent to continue

Newly discovered conflicts must be disclosed promptly so the client can decide whether to continue the relationship.

Which communication practice is specifically required when an adviser changes its fee schedule?

Answer: Notifying affected clients in writing with sufficient advance notice

Material changes to fee schedules require advance written notice to clients so they can evaluate the impact.

A client with low financial literacy asks about derivatives exposure in their portfolio. The counselor should:

Answer: Explain the concept in plain language appropriate to the client's knowledge level

Effective disclosure requires tailoring communication to the client's level of understanding to ensure genuine comprehension.

Under FINRA rules, which statement about customer account statements is correct?

Answer: Statements must be sent quarterly at minimum for accounts with activity

FINRA requires account statements at least quarterly, and monthly for accounts with transaction activity.