CIM Client Relations 4 — Questions and Answers
Question 1: An investment adviser registered with the SEC owes clients which duty under the Investment Advisers Act of 1940?
- A fiduciary duty of care and loyalty (Correct answer)
- A duty only to the firm's shareholders
- No specific duty beyond contract terms
- A suitability-only standard
Correct answer: A fiduciary duty of care and loyalty
The SEC interprets the Advisers Act as imposing a fiduciary duty of care and loyalty on advisers.
Question 2: Which part of Form ADV is the narrative 'brochure' that advisers give clients?
- Part 1A
- Part 2A (Correct answer)
- Part 3
- Schedule D
Correct answer: Part 2A
Form ADV Part 2A is the plain-English brochure describing services, fees, and conflicts.
Question 3: A manager receives a client complaint about an unauthorized trade. What is the best first step?
- Ignore it if the trade made money
- Ask the client to withdraw the complaint
- Document the complaint and escalate it to compliance under firm procedures (Correct answer)
- Reverse the trade without telling anyone
Correct answer: Document the complaint and escalate it to compliance under firm procedures
Complaints must be recorded and escalated to compliance so they can be investigated and resolved properly.
Question 4: Which situation is a conflict of interest that must be disclosed to clients?
- The firm uses an independent custodian
- The manager uses a widely published benchmark
- The manager receives higher compensation for recommending proprietary funds (Correct answer)
- The client has a long time horizon
Correct answer: The manager receives higher compensation for recommending proprietary funds
Extra compensation tied to particular products creates an incentive that clients need to know about.
Question 5: An elderly client suddenly asks to wire most of their assets to a new 'friend' met online. What should the manager do?
- Do nothing because the client has authority
- Process the wire immediately as instructed
- Close the account
- Raise concerns with the client, contact the trusted contact person, and escalate per firm policy for possible exploitation (Correct answer)
Correct answer: Raise concerns with the client, contact the trusted contact person, and escalate per firm policy for possible exploitation
FINRA Rules 4512 and 2165 allow firms to use trusted contacts and temporarily hold disbursements when financial exploitation is suspected.
Question 6: Why do firms ask clients to name a trusted contact person?
- To act as a co-owner of the account
- To have someone to contact about suspected exploitation, health status, or the client's whereabouts (Correct answer)
- To share account statements monthly
- To give that person trading authority
Correct answer: To have someone to contact about suspected exploitation, health status, or the client's whereabouts
A trusted contact is a resource for protecting the client and has no authority over the account.
Question 7: Which practice best keeps client trust over the long term?
- Contacting clients only when performance is strong
- Avoiding discussion of fees
- Proactive, regular, and transparent communication, including during downturns (Correct answer)
- Using technical jargon to show expertise
Correct answer: Proactive, regular, and transparent communication, including during downturns
Regular, honest communication sets expectations and builds trust in good and bad markets.
CIM Client Relations 4
An investment adviser registered with the SEC owes clients which duty under the Investment Advisers Act of 1940?