Ethical and Fiduciary Duties Flashcards

A CRPC designee manages a discretionary retirement account and makes several trades that generate high commissions without meaningfully improving the client's portfolio. This is best described as:

Answer: Churning, a violation of fiduciary and ethical duties

Churning — excessive trading designed to generate commissions rather than benefit the client — is a serious ethical and legal violation.

Which statement correctly describes the difference between a suitability standard and a fiduciary standard in retirement advice?

Answer: Fiduciary requires the advisor to put client interests first, while suitability only requires that recommendations be reasonably appropriate

The fiduciary standard imposes a higher duty — placing client interests first — while suitability requires only that recommendations be reasonably appropriate for the client.

A retirement planner discovers that a data entry error caused a client to be underinvested in equities for two years, resulting in a missed return opportunity. What is the ethical obligation?

Answer: Disclose the error to the client and discuss remediation options

Honesty and transparency require full disclosure of errors to clients, along with a discussion of any remediation steps that may be appropriate.

Which of the following is NOT typically considered a fiduciary duty under standard professional ethics for retirement planners?

Answer: Duty to guarantee investment returns

Fiduciaries are not required to guarantee investment returns; their obligations center on loyalty, care, and confidentiality, not investment outcomes.

A CRPC designee is asked to sign a client's retirement account application form without reviewing the client's current financial situation. What should the advisor do?

Answer: Refuse to sign until a proper suitability review has been completed

An advisor has an ethical duty to conduct a proper suitability review before signing applications or making recommendations, regardless of time pressure.

When must a CRPC designee update a client's written financial plan according to best practice ethical standards?

Answer: Periodically and whenever there are material changes to the client's financial situation or goals

Ethical standards require that retirement plans be kept current through regular reviews and updates whenever material life changes occur.

A client instructs a CRPC designee to invest their IRA entirely in a single speculative stock. What is the advisor's most ethically appropriate response?

Answer: Discuss the concentration risk, document the client's informed decision, and note any objections in writing

Advisors must educate clients about risks, document the informed decision process, and note objections — respecting autonomy while fulfilling the duty of care.