CIC IAA Standards of Practice 2

Question 1

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

Accepted Answer

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

Answer

Short-term interests always prevail to satisfy the client

Answer

Neither; the adviser must present both options and let the client decide without guidance

Answer

The adviser's firm policy determines which takes precedence

Question 2

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

Accepted Answer

Report the conduct to appropriate supervisory or compliance personnel

Answer

Warn the clients being harmed directly without involving compliance

Answer

Document it privately and take no further action to avoid workplace conflict

Answer

Front-running is only prohibited for the member personally, not a reportable offense by others

Question 3

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?

Accepted Answer

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

Answer

Execute the trade immediately since the client gave informed consent

Answer

Refuse entirely and terminate the relationship

Answer

Execute only if the firm's compliance department approves each trade

Question 4

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

Accepted Answer

Refrain from trading or tipping and establish information barriers

Answer

Use it to protect clients from potential losses

Answer

Immediately trade on it before reporting to avoid client harm

Answer

Disclose it to all clients simultaneously so no one gains an advantage

Question 5

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

Accepted Answer

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

Answer

All clients receive identical investment recommendations regardless of their profiles

Answer

Fees must be the same for all clients with similar account sizes

Answer

Investment opportunities must be offered simultaneously to every client

Question 6

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

Accepted Answer

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

Answer

Rebalancing a portfolio annually to maintain target allocations

Answer

Making three tactical adjustments in a month following a market correction

Answer

Switching a client from one mutual fund to a lower-cost equivalent

Question 7

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

Accepted Answer

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

Answer

Limited to the adviser's five best-performing accounts to demonstrate capability

Answer

Presented net of all fees to show real returns earned by clients

Answer

Shown only for periods of at least ten years to ensure statistical significance