Investment Advisor Fiduciary Duty and Ethics

Question 1

Under the Investment Advisers Act of 1940, an investment adviser has a fiduciary duty to act in the best interest of whom?

Accepted Answer

The client

Answer

The adviser's employer

Answer

The SEC

Answer

The broker-dealer

Question 2

Which of the following best describes a conflict of interest for an investment adviser?

Accepted Answer

Receiving undisclosed compensation for recommending a specific fund

Answer

Recommending low-cost index funds

Answer

Charging a flat annual advisory fee

Answer

Diversifying a client's portfolio

Question 3

An investment adviser who breaches their fiduciary duty by placing their own interests ahead of clients may be subject to what action?

Accepted Answer

Civil liability and potential regulatory sanctions

Answer

Only a verbal warning from the SEC

Answer

Mandatory retirement

Answer

A tax penalty only

Question 4

The duty of loyalty under fiduciary standards requires an investment adviser to:

Accepted Answer

Avoid or disclose all conflicts of interest

Answer

Maximize commissions on each trade

Answer

Prioritize the adviser's firm revenue

Answer

Follow all client instructions regardless of suitability

Question 5

Which document is primarily used by registered investment advisers to disclose conflicts of interest, fees, and services to clients?

Accepted Answer

Form ADV Part 2

Answer

Form 13F

Answer

Form U4

Answer

Form BD

Question 6

An investment adviser discovers a material error in a client's portfolio report. Ethical conduct requires the adviser to:

Accepted Answer

Immediately correct and disclose the error to the client

Answer

Wait until the next quarterly review to mention it

Answer

Delete the erroneous report and issue a new one silently

Answer

Only disclose if the error favors the adviser