CMFAS Financial Advisory Ethics 2 — Questions and Answers
Question 1: What is the balanced scorecard framework for financial advisers?
- A sports scoring system
- A framework that assesses advisers on multiple criteria including ethics, not just sales (Correct answer)
- A method for calculating commissions
- A client feedback form
Correct answer: A framework that assesses advisers on multiple criteria including ethics, not just sales
The balanced scorecard evaluates financial advisers on multiple dimensions including compliance, quality of advice, customer outcomes, and professional development — not just sales volume.
Question 2: What should a financial adviser do if they discover a product is unsuitable for a client after sale?
- Ignore the issue
- Inform the client promptly and take corrective action (Correct answer)
- Hide the information
- Wait for the client to complain
Correct answer: Inform the client promptly and take corrective action
The adviser must promptly inform the client about the unsuitability and work to rectify the situation, such as recommending a switch or cancellation.
Question 3: What is churning in financial advisory?
- Making butter
- Excessive trading or switching of products to generate commissions rather than benefit the client (Correct answer)
- Updating client records
- Reviewing product performance
Correct answer: Excessive trading or switching of products to generate commissions rather than benefit the client
Churning involves advising clients to make unnecessary trades or switch products primarily to generate commissions for the adviser, not to benefit the client.
Question 4: What is the purpose of continuing professional development (CPD) for financial advisers?
- To increase sales
- To ensure advisers maintain and update their knowledge and skills (Correct answer)
- To qualify for promotions
- To avoid paying taxes
Correct answer: To ensure advisers maintain and update their knowledge and skills
CPD ensures that financial advisers stay current with regulatory changes, market developments, and industry best practices to provide competent advice.
Question 5: What is the responsibility of a financial adviser regarding client confidentiality?
- Share client information freely
- Keep all client information confidential unless authorised to disclose or required by law (Correct answer)
- Only keep financial information confidential
- Confidentiality expires after one year
Correct answer: Keep all client information confidential unless authorised to disclose or required by law
Financial advisers must maintain strict confidentiality of all client information and only disclose it with the client's consent or when legally required.
Question 6: What is the difference between an independent financial adviser and a tied agent?
- No difference
- An independent adviser can recommend products from multiple providers; a tied agent represents only one company (Correct answer)
- Tied agents are more experienced
- Independent advisers charge more
Correct answer: An independent adviser can recommend products from multiple providers; a tied agent represents only one company
An independent financial adviser can recommend products from a range of providers. A tied agent represents only one insurance company and can only recommend that company's products.
CMFAS Financial Advisory Ethics 2
What is the balanced scorecard framework for financial advisers?