Professional Ethics and Standards Flashcards

Under the Client Focused Reforms (CFRs), how must a registrant handle a conflict of interest that cannot be avoided or adequately managed?

Answer: Refer the client to another registrant and decline to act

When a conflict of interest cannot be avoided or sufficiently managed to protect the client, the registrant must decline to act in that capacity.

What action is required when a mutual fund representative leaves their employing dealer and joins a new firm?

Answer: They must re-register with CIRO under the new sponsoring dealer before trading

Registration is dealer-specific; a representative must be sponsored and registered under the new dealer before conducting any registrable activities.

A client who is close to retirement asks for high-risk speculative fund recommendations. Ethically, the representative should:

Answer: Assess the suitability carefully given the client's time horizon and financial position and explain the risks

Suitability assessment is required regardless of client insistence; the representative must explain why high-risk investments may be inappropriate for someone near retirement.

Which of the following is an example of a 'referral arrangement' that must be disclosed under CIFC standards?

Answer: An agreement where a representative receives compensation for referring clients to another financial service provider

Referral fee arrangements create conflicts of interest and must be disclosed so clients understand the representative's potential financial motivation.

Under CIFC ethical standards, what is the representative's responsibility regarding client complaints?

Answer: Acknowledge, investigate, and respond to complaints in accordance with firm policies and regulatory requirements

Firms must have documented complaint-handling procedures, and representatives must follow them to ensure clients receive fair and timely responses.

What is 'reverse churning' in the context of fee-based accounts?

Answer: Placing a client in a fee-based account and then conducting little or no trading, resulting in unjustified ongoing fees

Reverse churning occurs when clients pay ongoing advisory fees for a fee-based account but receive minimal service or transactions to justify those fees.

Which of the following best describes the 'reasonable basis' standard for suitability under CIFC guidelines?

Answer: A representative must have an objective, evidence-based rationale for believing a recommendation is suitable for a specific client

The reasonable basis standard requires representatives to have documented, logical grounds for each recommendation based on the client's individual profile.