IAA Standards of Practice Flashcards

Under IAA Standards, which duty takes precedence when a client's short-term interests conflict with their long-term financial wellbeing?

Answer: Long-term wellbeing, as the adviser must act in the client's best interest overall

IAA Standards require advisers to act in clients' overall best interests, which typically means prioritizing long-term financial wellbeing over short-term preferences.

An IAA member discovers that a colleague is front-running client orders. What is the member's obligation?

Answer: Report the conduct to appropriate supervisory or compliance personnel

IAA Standards require members to report known violations by colleagues to appropriate supervisory or compliance personnel.

A client requests that their adviser execute a strategy the adviser believes is unsuitable. After fully explaining the risks, the client insists. What should the adviser do?

Answer: Document the client's informed decision and may execute while noting the suitability concern

After documenting the client's informed decision to override the adviser's recommendation, the adviser may proceed while maintaining a clear record of the suitability concern.

According to IAA Standards, how must an investment adviser handle material nonpublic information received accidentally?

Answer: Refrain from trading or tipping and establish information barriers

Upon receiving material nonpublic information, advisers must refrain from trading or tipping and implement information barriers to prevent misuse.

When the IAA Standards require 'fair dealing' with clients, this means:

Answer: Advisers treat all clients equitably, though services may differ based on agreements

Fair dealing requires equitable treatment of all clients, though the scope of services may legitimately vary based on contractual agreements and client needs.

Under IAA Standards, which scenario best illustrates a violation of the prohibition on excessive trading?

Answer: Executing 12 trades per day in a small account primarily to generate commissions

Executing frequent trades primarily to generate commissions rather than to benefit the client constitutes churning, which violates IAA Standards.

IAA Standards require that performance information presented to prospects must be:

Answer: Based on composite results that are fair, accurate, and not misleading

Performance presentations must use composites that fairly represent the adviser's track record and must not be misleading through selective inclusion of results.