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

A Registered Investment Advisor (RIA) has a fiduciary duty, which is the highest legal standard of care. This means they are legally obligated to put their client's financial interests ahead of their own or their firm's. They must provide advice that is suitable and in the client's best interest, even if it means lower compensation for the advisor.

Question 2

Which regulation governs the behavior of RIAs?

Accepted Answer

The Investment Advisers Act of 1940

Answer

The Investment Advisers Act of 1940 is the primary federal law that regulates the activities of investment advisors. It establishes the registration requirements, record-keeping rules, and anti-fraud provisions that RIAs must adhere to. This act is fundamental to protecting investors and ensuring ethical conduct in the advisory industry.

Question 3

What must be included in Form ADV Part 2?

Accepted Answer

Disclosure of services, fees, and conflicts.

Answer

Form ADV Part 2, also known as the "brochure," is a crucial document that RIAs must provide to clients. It contains plain-language disclosures about the advisor's services, fee structure, disciplinary information, and any potential conflicts of interest. This transparency helps clients make informed decisions about engaging an advisor.

Question 4

When must a conflict of interest be disclosed?

Accepted Answer

Before or at the time of giving advice.

Answer

RIAs have a fiduciary duty to disclose all material conflicts of interest to their clients. This disclosure must happen proactively, either before or at the time investment advice is provided. This ensures clients are fully aware of any situations where the advisor's interests might diverge from their own.

Question 5

How often must RIAs update their Form ADV?

Accepted Answer

Annually and with material changes.

Answer

RIAs are required to update their Form ADV annually within 90 days of their fiscal year-end. Additionally, they must amend their Form ADV promptly if any material changes occur, such as a change in ownership, business practices, or disciplinary history. This ensures that the information provided to regulators and clients remains current and accurate.

(RIA) Registered Investment Advisor Practice Test

(RIA) Registered Investment Advisor Practice Test

RIA Ethics & Regulatory Guidelines