CIC Fiduciary Duty and Responsibilities 3

Question 1

What distinguishes a fiduciary standard from a suitability standard in investment advisory relationships?

Accepted Answer

The fiduciary standard requires the advisor to act in the client's best interest, not merely recommend suitable products

Answer

The fiduciary standard requires only that investments be appropriate for the client's profile

Answer

The suitability standard is stricter and applies only to registered investment advisors

Answer

There is no meaningful legal difference between the two standards

Question 2

A CIC managing a trust account engages in excessive trading that generates commissions but provides no benefit to the trust. This practice is known as:

Accepted Answer

Churning

Answer

Scalping

Answer

Front-running

Answer

Window dressing

Question 3

Under the Investment Advisers Act of 1940, registered investment advisors owe clients which standard of conduct?

Accepted Answer

Fiduciary standard

Answer

Suitability standard

Answer

Best execution standard only

Answer

Reasonable care standard

Question 4

A fiduciary who delegates investment management responsibilities to a sub-advisor is:

Accepted Answer

Still responsible for the prudent selection and monitoring of the sub-advisor

Answer

Fully relieved of all fiduciary liability once delegation occurs

Answer

Required to obtain written client consent before any delegation

Answer

Prohibited from delegation under fiduciary law

Question 5

Which of the following is an example of a breach of the duty of care by an investment counselor?

Accepted Answer

Failing to conduct adequate due diligence before recommending a complex structured product

Answer

Recommending a diversified equity portfolio to a young client with high risk tolerance

Answer

Charging a fee that is clearly disclosed in the advisory agreement

Answer

Following client instructions to hold a concentrated position

Question 6

An investment counselor receives research reports from a broker in exchange for directing client trades to that broker. This arrangement is known as:

Accepted Answer

Soft dollar arrangement

Answer

Revenue sharing

Answer

Commission recapture

Answer

Payment for order flow

Question 7

When must a fiduciary update a client's Investment Policy Statement (IPS)?

Accepted Answer

Whenever there is a material change in the client's financial situation, goals, or risk tolerance

Answer

Only when the client requests a change

Answer

Every five years regardless of circumstances

Answer

Only when there is a regulatory requirement to do so