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Financial Advisor Ethics and Compliance Flashcards

6 cards from real Financial Advisor practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 6 Financial Advisor Ethics and Compliance flashcards as text

  1. A financial advisor learns that a corporate client is about to announce a major acquisition. Trading on this information before the announcement is an example of:

    Answer: Insider trading

    Trading securities based on material non-public information is insider trading, which is illegal under SEC Rule 10b-5.

  2. What is the 'two-year look-back' rule relevant to under ERISA plan advisory compliance?

    Answer: A restriction on pay-to-play contributions before managing government funds

    Pay-to-play rules impose a two-year look-back period during which certain political contributions can disqualify an adviser from compensation for managing government accounts.

  3. Which of the following is an example of a prohibited practice under anti-money laundering (AML) rules for financial advisors?

    Answer: Structuring transactions to avoid CTR reporting thresholds

    Structuring transactions to stay below the $10,000 Currency Transaction Report threshold ('structuring') is illegal under the Bank Secrecy Act.

  4. Under the Investment Advisers Act, which of the following advisers is generally required to register with the SEC?

    Answer: An adviser managing $110 million or more in assets

    Advisers managing $110 million or more in regulatory assets under management are generally required to register with the SEC.

  5. What is the purpose of a financial advisor's written compliance policies and procedures under SEC Rule 206(4)-7?

    Answer: To prevent, detect, and correct violations of the Advisers Act

    SEC Rule 206(4)-7 requires registered investment advisers to adopt written compliance policies designed to prevent and detect Advisers Act violations.

  6. A financial advisor simultaneously represents both the buyer and seller of the same securities transaction. This is known as:

    Answer: Agency cross transaction

    An agency cross transaction occurs when an adviser acts as agent for both buyer and seller in the same trade, which requires specific disclosure and client consent.