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

Registered investment advisers have a fiduciary duty to act in the best interest of their clients, placing client interests above their own.

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

Form ADV Part 2 requires advisors to disclose material conflicts of interest so clients can make informed decisions.

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

Failing to disclose compensation arrangements violates the adviser's duty of disclosure regarding conflicts of interest.

Question 4

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

Accepted Answer

Excessive trading in a client account to generate commissions

Answer

Churning refers to excessive trading activity in a client's account primarily to generate commissions for the advisor, which is prohibited.

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

Regulation Best Interest (Reg BI) requires broker-dealers to act in the best interest of retail customers when making recommendations.

Financial Advisor Practice Test

Financial Advisor Practice Test

Financial Advisor Financial Advisor Ethics and Compliance