Fiduciary Duty and Responsibilities Flashcards

A CIC discovers that a recommended investment would generate a higher commission for the advisor than an equally suitable alternative. Under fiduciary duty, what must the advisor do?

Answer: Disclose the conflict and recommend the investment that best serves the client's interest

Fiduciaries must disclose conflicts of interest and always act in the client's best interest, not their own financial interest.

Which legal doctrine holds that fiduciaries must not place their own interests above those of their clients?

Answer: Duty of loyalty

The duty of loyalty requires fiduciaries to subordinate their personal interests to those of the client at all times.

An investment counselor manages a discretionary account and executes trades without client authorization on each transaction. Is this permissible under a fiduciary relationship?

Answer: Yes, if a written discretionary agreement was signed by the client

A properly executed written discretionary agreement grants the advisor authority to trade without per-transaction approval, consistent with fiduciary obligations.

Under ERISA, which standard applies to investment advisors managing pension plan assets?

Answer: Fiduciary standard

ERISA imposes a strict fiduciary standard on anyone who exercises discretionary authority or control over plan assets.

A fiduciary investment counselor learns of a business opportunity that would benefit both the client's portfolio and the advisor personally. What is the appropriate course of action?

Answer: Recommend the opportunity to the client first, ensuring client interests are prioritized

Fiduciaries must give priority to client opportunities and cannot usurp business opportunities that rightfully belong to the client.

Which of the following best describes the concept of 'informed consent' in the fiduciary context?

Answer: The client acknowledges understanding the risks after receiving full material disclosure

Informed consent requires the fiduciary to provide full material disclosure so the client can make a knowledgeable decision about the relationship.

A client instructs their CIC to invest only in socially responsible funds, even if returns may be lower. How should the fiduciary respond?

Answer: Follow the client's instructions, as client preferences are a legitimate investment objective

Fiduciary duty includes following lawful client directives; client values and preferences are valid investment objectives.