CRPC Ethical and Fiduciary Duties 4 — Questions and Answers
Question 1: 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:
- Reasonable portfolio rebalancing
- Churning, a violation of fiduciary and ethical duties (Correct answer)
- Acceptable active management strategy
- Dollar-cost averaging
Correct 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.
Question 2: Which statement correctly describes the difference between a suitability standard and a fiduciary standard in retirement advice?
- Suitability requires the advisor to act in the client's best interest at all times, while fiduciary requires only that products be appropriate
- Fiduciary requires the advisor to put client interests first, while suitability only requires that recommendations be reasonably appropriate (Correct answer)
- Both standards impose identical obligations on retirement advisors
- Suitability applies to fee-only advisors while fiduciary applies to commission-based advisors
Correct 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.
Question 3: 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?
- Correct the error going forward and monitor more carefully
- Disclose the error to the client and discuss remediation options (Correct answer)
- Keep the error confidential to protect the firm's reputation
- Attribute the underperformance to market conditions in the client's next report
Correct 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.
Question 4: Which of the following is NOT typically considered a fiduciary duty under standard professional ethics for retirement planners?
- Duty of loyalty
- Duty of care
- Duty to guarantee investment returns (Correct answer)
- Duty of confidentiality
Correct 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.
Question 5: 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?
- Sign if the client asserts the information is accurate
- Refuse to sign until a proper suitability review has been completed (Correct answer)
- Sign with a notation that the review is pending
- Defer to the product provider to assess suitability
Correct 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.
Question 6: When must a CRPC designee update a client's written financial plan according to best practice ethical standards?
- Only when the client requests a formal update
- Periodically and whenever there are material changes to the client's financial situation or goals (Correct answer)
- At fixed five-year intervals regardless of life changes
- Only when the market conditions change significantly
Correct 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.
Question 7: 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?
- Follow the instruction immediately, as client autonomy overrides fiduciary obligations
- Discuss the concentration risk, document the client's informed decision, and note any objections in writing (Correct answer)
- Refuse the instruction and invest the IRA according to a standard diversified model
- Transfer the account to another advisor who will follow the instruction
Correct 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.
CRPC Ethical and Fiduciary Duties 4
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: