CRPC Ethical and Fiduciary Duties 3 — Questions and Answers
Question 1: Which scenario illustrates an undisclosed conflict of interest that would violate fiduciary standards for a retirement planner?
- Recommending a mutual fund in which the advisor holds a personal investment without disclosing this fact (Correct answer)
- Referring a client to an estate attorney and receiving a thank-you gift worth $25
- Charging a flat fee for retirement planning regardless of assets under management
- Using a standardized risk tolerance questionnaire for all clients
Correct answer: Recommending a mutual fund in which the advisor holds a personal investment without disclosing this fact
Recommending a security in which the advisor has an undisclosed personal financial interest is a clear conflict of interest that must be disclosed.
Question 2: Under DOL fiduciary rules, when must a retirement advisor providing rollover recommendations act in the client's best interest?
- Only when managing assets in an ERISA-governed plan
- Whenever providing rollover advice regardless of whether assets are currently in an ERISA plan (Correct answer)
- Only when the rollover involves more than $100,000
- Only when the client is over age 59½
Correct answer: Whenever providing rollover advice regardless of whether assets are currently in an ERISA plan
DOL fiduciary rules require best-interest conduct whenever providing rollover advice, including recommendations to move assets from a plan to an IRA.
Question 3: A CRPC designee advises a client to consolidate multiple retirement accounts into a single IRA managed by the advisor's firm. What disclosure obligation exists?
- No disclosure is needed if the consolidation genuinely simplifies the client's finances
- The advisor must disclose any compensation received as a result of the consolidation (Correct answer)
- Disclosure is only required if the IRA charges higher fees than the original plan
- Disclosure is required only when ERISA assets are involved
Correct answer: The advisor must disclose any compensation received as a result of the consolidation
Any compensation the advisor or firm receives as a result of a rollover or consolidation recommendation must be fully disclosed to the client.
Question 4: Which of the following is the most appropriate response when a CRPC designee realizes they lack sufficient expertise in a specialized area relevant to a client's retirement plan?
- Provide the best advice possible and note any uncertainty in writing
- Refer the client to a qualified specialist or collaborate with one (Correct answer)
- Limit advice to areas where the advisor is competent and ignore the specialized area
- Ask the client to research the topic independently
Correct answer: Refer the client to a qualified specialist or collaborate with one
The duty of competence requires advisors to either develop the necessary expertise or refer clients to qualified specialists when a specialized area is outside their knowledge.
Question 5: A retirement planner learns that a 78-year-old client has recently changed their beneficiary to a new acquaintance and made several large withdrawals. What is the appropriate action?
- Process all transactions as requested because the client has legal capacity
- Document the observations and consider reporting suspected financial exploitation to the appropriate authorities (Correct answer)
- Contact the previous beneficiary to alert them of the changes
- Refuse to process any further transactions until the client's family is notified
Correct answer: Document the observations and consider reporting suspected financial exploitation to the appropriate authorities
Unusual financial activity in elderly clients may indicate exploitation, and advisors have an ethical — and in many states legal — obligation to document and report such concerns.
Question 6: The fiduciary duty of care in retirement planning specifically requires that an advisor:
- Guarantee the client's portfolio against losses during market downturns
- Act with the competence and diligence that a reasonable professional would exercise (Correct answer)
- Follow the client's investment instructions without question to respect their autonomy
- Select the investment strategy with the highest historical returns
Correct answer: Act with the competence and diligence that a reasonable professional would exercise
The duty of care requires advisors to bring reasonable professional competence and diligence to every client engagement.
Question 7: A CRPC designee is offered a large referral fee from a long-term care insurance provider for each client enrolled. How should this be handled ethically?
- Accept the fee since referral arrangements are always permissible
- Disclose the referral fee arrangement fully to clients before recommending the insurance (Correct answer)
- Decline the fee arrangement entirely as referral fees are always prohibited
- Accept the fee only if long-term care insurance is appropriate for all clients referred
Correct answer: Disclose the referral fee arrangement fully to clients before recommending the insurance
Referral fees create conflicts of interest that must be fully disclosed so clients can evaluate whether the recommendation is truly in their best interest.
CRPC Ethical and Fiduciary Duties 3
Which scenario illustrates an undisclosed conflict of interest that would violate fiduciary standards for a retirement planner?