Free IAR Ethics & Professional Conduct Questions and Answers

Question 1

Under the fiduciary standard, what must an IAR prioritize above all else?

Accepted Answer

The client's best interest

Answer

Under the fiduciary standard, Investment Adviser Representatives (IARs) are legally and ethically obligated to act solely in the best interest of their clients. This means prioritizing the client's needs, goals, and financial well-being above their own or their firm's interests, including avoiding conflicts of interest or disclosing them transparently.

Question 2

What is the first step an IAR should take if they identify a conflict of interest?

Accepted Answer

Disclose it to the client in writing

Answer

Under the fiduciary standard, if an IAR identifies a conflict of interest, their primary obligation is to disclose it fully and clearly to the client in writing. This transparency allows the client to make an informed decision about whether to proceed with the recommendation or service, knowing all relevant information about the potential conflict.

Question 3

Which action violates the CFA Institute's Code of Ethics?

Accepted Answer

Plagiarizing investment research reports

Answer

The CFA Institute's Code of Ethics and Standards of Professional Conduct strictly prohibits plagiarism. Plagiarizing investment research reports violates the standard of "Reference to Research, Quotations, and Outside Information" by presenting others' work as one's own, undermining the integrity and ethical conduct expected of investment professionals.

Question 4

An IAR learns a client is engaged in illegal activity. What should they do?

Accepted Answer

Report it to authorities if legally obligated

Answer

If an IAR learns a client is engaged in illegal activity, they have a legal and ethical obligation to report it to the appropriate authorities, especially if it involves financial crimes like money laundering or fraud. This is mandated by regulations such as the Bank Secrecy Act and anti-money laundering (AML) laws. Continuing to manage such investments without reporting could implicate the IAR.

Question 5

What is 'soft dollar' abuse under SEC rules?

Accepted Answer

Using client commissions to cover office rent or entertainment

Answer

"Soft dollar" arrangements allow investment advisors to use client commissions to pay for research and brokerage services that directly benefit the client. However, soft dollar abuse occurs when advisors use client commissions to pay for services that are not research-related and primarily benefit the advisor or firm, such as office rent, administrative expenses, or entertainment. This is a violation of SEC rules as it constitutes a breach of fiduciary duty.

IAR - Investment Advisory Representative Certification Practice Test

IAR - Investment Advisory Representative Certification Practice Test

Free IAR Ethics & Professional Conduct Questions and Answers