Financial Advisor Financial Advisor Ethics and Compliance

Question 1

Under the Investment Advisers Act of 1940, what is the primary fiduciary duty of a registered investment adviser?

Accepted Answer

Act in the best interest of the client

Answer

Maximize commissions earned

Answer

Follow employer guidelines above client needs

Answer

Recommend only proprietary products

Question 2

Which of the following must a financial advisor disclose to clients under Form ADV Part 2?

Accepted Answer

Material conflicts of interest

Answer

Personal social media accounts

Answer

Names of all other clients

Answer

Internal firm salary structures

Question 3

A financial advisor who receives compensation for recommending a specific mutual fund without disclosing this to the client has most likely violated which rule?

Accepted Answer

The disclosure and conflict-of-interest rule

Answer

Regulation T

Answer

SEC Rule 206(4)-7

Answer

The anti-churning rule

Question 4

What is 'churning' in the context of financial advisory compliance?

Accepted Answer

Excessive trading in a client account to generate commissions

Answer

Rotating between growth and value stocks quarterly

Answer

Moving assets between taxable and tax-deferred accounts

Answer

Reinvesting dividends automatically

Question 5

Under FINRA rules, what standard must broker-dealers meet when recommending securities to retail customers?

Accepted Answer

Best Interest (Reg BI) standard

Answer

Fiduciary standard

Answer

Suitability standard only

Answer

Reasonable basis standard only

Question 6

Which document must an investment adviser deliver to a prospective client before or at the time of entering an advisory contract?

Accepted Answer

Form ADV Part 2 (brochure)

Answer

Form 4

Answer

Form U4

Answer

Form 13F