CIC Client Communication and Disclosure 4

Question 1

Under NASAA model rules, how often must an investment adviser deliver or offer to deliver its brochure to existing clients?

Accepted Answer

Annually, with an offer to deliver the full brochure

Answer

Only upon initial engagement

Answer

Every three years unless material changes occur

Answer

Only when the client requests it

Question 2

An elderly client shows signs of cognitive decline during account review meetings. The investment counselor's best course of action is to:

Accepted Answer

Note the observations, consult compliance, and consider involving a trusted contact person

Answer

Continue as normal and document nothing to avoid liability

Answer

Immediately freeze the account without client consent

Answer

Transfer the account to a family member without further investigation

Question 3

Which statement about risk disclosure in investment advisory communications is accurate?

Accepted Answer

Risk disclosure must be specific to the actual risks of the recommended strategy or product

Answer

Generic boilerplate risk language satisfies all disclosure requirements

Answer

Risk factors need only be disclosed in annual reports

Answer

Only catastrophic risks need to be disclosed to clients

Question 4

A client has a discretionary account. How does this affect the communication requirements for individual trades?

Accepted Answer

Post-trade confirmations and periodic account statements must still be provided

Answer

Pre-trade approval from the client is required for each transaction

Answer

No communication is required since the adviser has full discretion

Answer

Only annual summaries are needed for discretionary accounts

Question 5

Under the SEC Marketing Rule, which type of testimonial from a client is now permissible for investment advisers?

Accepted Answer

Client testimonials, subject to specific disclosure requirements and conditions

Answer

Any testimonial without restrictions since all are now banned

Answer

Only testimonials from institutional clients

Answer

Testimonials are still completely prohibited under the updated rule

Question 6

When a client experiences a significant life event such as divorce, the investment counselor should:

Accepted Answer

Proactively reach out to reassess the client's financial situation and update disclosures as needed

Answer

Wait for the next scheduled review to update the file

Answer

Assume the investment policy statement remains valid without review

Answer

Refer all life event discussions to an attorney only

Question 7

The 'know your customer' (KYC) obligation in investment advising primarily serves to:

Accepted Answer

Ensure recommendations are suitable and communications are tailored to the client's actual situation

Answer

Satisfy anti-money laundering requirements only

Answer

Limit the adviser's legal liability in case of losses

Answer

Fulfill tax reporting requirements for the IRS