CIC IAA Standards of Practice 3

Question 1

An IAA member serves on the board of a public company while also managing portfolios that hold that company's stock. Which action best addresses this conflict?

Accepted Answer

Disclose the board membership to clients and recuse from investment decisions about that company

Answer

IAA Standards require full disclosure of the conflict and recusal from investment decisions involving the company where board service creates material nonpublic information risk.

Question 2

How do IAA Standards define a 'material' conflict of interest?

Accepted Answer

A conflict that a reasonable client would consider important when evaluating the adviser's recommendation

Answer

Materiality is judged by whether a reasonable client would find the conflict significant in evaluating the adviser's objectivity and recommendations.

Question 3

Under IAA Standards, what is required when an adviser switches a client from one investment product to another?

Accepted Answer

The adviser must document a reasonable basis that the new investment is suitable and beneficial for the client

Answer

IAA Standards require advisers to have and document a reasonable basis for believing that any recommended switch serves the client's interest rather than generating commissions.

Question 4

An adviser's firm offers a proprietary mutual fund that pays higher revenue sharing than third-party funds. IAA Standards require the adviser to:

Accepted Answer

Disclose the revenue-sharing arrangement and recommend based on the client's best interest

Answer

Advisers must disclose conflicts created by revenue-sharing arrangements and base recommendations on the client's best interest, not compensation incentives.

Question 5

According to IAA Standards, client confidentiality obligations survive:

Accepted Answer

Indefinitely, even after the advisory relationship ends

Answer

IAA Standards impose indefinite confidentiality obligations; the duty to protect client information does not expire when the advisory relationship ends.

(CIC) Certified Investment Counselor Practice Test

(CIC) Certified Investment Counselor Practice Test

CIC IAA Standards of Practice 3