Financial Advisor Financial Advisor Ethics and Compliance 5

Question 1

Which document must an SEC-registered investment adviser provide to new clients at or before entering into an advisory contract?

Accepted Answer

Form ADV Part 2 (the brochure)

Answer

Form ADV Part 2 (the brochure) must be delivered to clients at or before entering into an advisory agreement, disclosing fees, conflicts, and business practices.

Question 2

A financial advisor discovers that a client's account statement contains an error that overstates the account value by $5,000. The advisor's ethical obligation is to:

Accepted Answer

Correct the error and notify the client promptly

Answer

Advisors have an ethical obligation to promptly correct errors and disclose them to clients to maintain trust and accuracy.

Question 3

What is the primary purpose of a financial adviser's 'Know Your Customer' (KYC) obligations?

Accepted Answer

To understand the client's financial situation, risk tolerance, and objectives for suitable recommendations

Answer

KYC requirements exist to ensure advisers understand their clients well enough to make suitable recommendations aligned with their financial goals and risk tolerance.

Question 4

An advisor recommends a variable annuity to a client in their early 30s with long-term growth goals. The annuity has high surrender charges. This recommendation may raise concerns about:

Accepted Answer

Suitability and adequacy of disclosure regarding fees and restrictions

Answer

High-cost products with significant surrender charges must be recommended only when they align with the client's needs, with full disclosure of all fees and restrictions.

Question 5

Which of the following is an example of a prohibited practice under FINRA rules regarding communications with the public?

Accepted Answer

Using hypothetical performance projections as if they were actual past results

Answer

Presenting hypothetical performance as actual historical results is misleading and prohibited under FINRA rules governing communications.

Financial Advisor Practice Test

Financial Advisor Practice Test

Financial Advisor Financial Advisor Ethics and Compliance 5