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 is higher, requiring the advisor to place the client's best interest above all else, while the suitability standard only requires recommendations be appropriate.

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

Churning refers to excessive trading in a client's account primarily to generate commissions, which is a breach of fiduciary duty.

Question 3

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

Accepted Answer

Fiduciary standard

Answer

The SEC has long interpreted the Investment Advisers Act of 1940 to impose a fiduciary duty on registered investment advisors.

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

Delegation does not eliminate fiduciary responsibility; the fiduciary must prudently select and continually monitor any delegated parties.

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

Failing to perform adequate due diligence before recommending investments violates the duty of care, which requires competent analysis.

(CIC) Certified Investment Counselor Practice Test

(CIC) Certified Investment Counselor Practice Test

CIC Fiduciary Duty and Responsibilities 3