Investment Advisor Fiduciary Duty and Ethics 2

Question 1

The 'duty of care' component of fiduciary responsibility requires an investment adviser to:

Accepted Answer

Make only recommendations suitable for the client's specific situation

Answer

The duty of care requires advisers to understand each client's financial situation and make recommendations that are genuinely suitable for that client.

Question 2

Which practice violates an investment adviser's ethical obligations?

Accepted Answer

Churning a client's account to generate commissions

Answer

Churning — excessive trading to generate commissions — violates the adviser's duty of loyalty and care by prioritizing adviser income over client interests.

Question 3

When an investment adviser has a personal financial interest in a security they recommend to clients, they must:

Accepted Answer

Disclose the personal interest before making the recommendation

Answer

Advisers must disclose any personal financial interest in securities they recommend so clients can assess potential bias.

Question 4

Under the NASAA Model Rule, which unethical practice involves an adviser making false or misleading statements about a security?

Accepted Answer

Misrepresentation

Answer

Misrepresentation involves making false or misleading statements about securities and is explicitly prohibited under state and federal adviser regulations.

Question 5

An adviser who makes trades in client accounts without authorization is committing what violation?

Accepted Answer

Unauthorized trading

Answer

Unauthorized trading occurs when an adviser executes trades in client accounts without obtaining proper client authorization.

Investment Advisor Practice Test

Investment Advisor Practice Test

Investment Advisor Fiduciary Duty and Ethics 2