RIA Ethics & Regulatory Guidelines

Question 1

What is a Registered Investment Advisor's (RIA) fiduciary duty?

Accepted Answer

To act in the best interest of the client.

Answer

To earn the highest commission possible.

Answer

To disclose only favorable outcomes.

Answer

To prioritize firm profits.

Question 2

Which regulation governs the behavior of RIAs?

Accepted Answer

The Investment Advisers Act of 1940

Answer

The Securities Act of 1933

Answer

The Dodd-Frank Act

Answer

The FINRA Conduct Code

Question 3

What must be included in Form ADV Part 2?

Accepted Answer

Disclosure of services, fees, and conflicts.

Answer

Monthly client reports

Answer

Portfolio performance data only

Answer

Advisor’s resume

Question 4

When must a conflict of interest be disclosed?

Accepted Answer

Before or at the time of giving advice.

Answer

Only after a complaint is filed.

Answer

Annually during review.

Answer

As soon as the client asks.

Question 5

How often must RIAs update their Form ADV?

Accepted Answer

Annually and with material changes.

Answer

Every five years

Answer

Only upon request

Answer

When the SEC sends a notice

Question 6

What is 'cherry picking' in the context of portfolio management?

Accepted Answer

Allocating good trades unfairly among clients.

Answer

Selecting undervalued stocks

Answer

Choosing only well-known companies

Answer

Filtering clients by net worth

Question 7

Which of the following is an ethical responsibility of an RIA?

Accepted Answer

Disclose all material facts.

Answer

Promise returns to attract clients

Answer

Omit certain fees to simplify discussions

Answer

Only explain high-performing investments

Question 8

What is 'soft dollar' compensation?

Accepted Answer

Non-monetary services from broker-dealers.

Answer

Cash bonuses from clients

Answer

Trading commissions returned as cash

Answer

Direct fee from client accounts

Question 9

What should an advisor do if a client requests inappropriate or illegal trades?

Accepted Answer

Reject the trade and explain why.

Answer

Follow the request to please the client

Answer

Consult another advisor

Answer

Execute the trade and report it later