CIC Fiduciary Duty and Responsibilities 2

Question 1

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?

Accepted Answer

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

Answer

Select the higher-commission investment since it meets suitability standards

Answer

Avoid all commission-based products entirely

Answer

Seek approval from a compliance officer before making any recommendation

Question 2

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

Accepted Answer

Duty of loyalty

Answer

Duty of care

Answer

Prudent investor rule

Answer

Business judgment rule

Question 3

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

Accepted Answer

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

Answer

No, every trade requires explicit client approval

Answer

Yes, only for trades under $10,000

Answer

No, discretionary authority violates fiduciary duty

Question 4

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

Accepted Answer

Fiduciary standard

Answer

Suitability standard

Answer

Best execution standard

Answer

Reasonable investor standard

Question 5

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?

Accepted Answer

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

Answer

Pursue the opportunity personally before recommending it to the client

Answer

Avoid the opportunity entirely to prevent any conflict

Answer

Split the opportunity equally between the advisor and client

Question 6

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

Accepted Answer

The client acknowledges understanding the risks after receiving full material disclosure

Answer

The client signs all trade confirmations within 24 hours

Answer

The client waives all liability for investment losses

Answer

The advisor documents all decisions in writing

Question 7

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

Accepted Answer

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

Answer

Refuse, as fiduciary duty requires maximizing returns

Answer

Require the client to sign a waiver before proceeding

Answer

Seek a court order to override the client's wishes