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

Investment advisers owe a fiduciary duty to their clients, requiring them to act in the client's best interest at all times.

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

Receiving undisclosed compensation for recommending specific products creates a conflict of interest that must be disclosed to clients.

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

Breaching fiduciary duty can result in civil lawsuits from clients and regulatory enforcement actions including fines and license revocation.

Question 4

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

Accepted Answer

Avoid or disclose all conflicts of interest

Answer

The duty of loyalty requires advisers to avoid or fully disclose conflicts of interest so clients can make informed decisions.

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 ADV Part 2 (the brochure) is the disclosure document investment advisers must provide to clients, covering fees, conflicts, and services.

Investment Advisor Practice Test