Fiduciary Duty and Ethics Flashcards
6 cards from real Investment Advisor practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Fiduciary Duty and Ethics flashcards as text
Which organization sets ethical standards for Certified Financial Planners (CFP) practicing as investment advisers?
Answer: The CFP Board
The CFP Board sets and enforces the code of ethics and standards of conduct for CFP certificants, including those acting as investment advisers.
Under the SEC's Regulation Best Interest (Reg BI), broker-dealers must act in whose best interest when making recommendations?
Answer: Their retail customers
Regulation Best Interest requires broker-dealers to act in the best interest of retail customers when making investment recommendations.
What is 'front-running' in the context of investment adviser ethics?
Answer: Trading in a security before executing a known client order that will affect the price
Front-running is the illegal practice of an adviser trading in a security for their own account before executing a client's pending order that will move the price.
Soft dollar arrangements involve an adviser receiving research or services in exchange for directing client brokerage. These arrangements must be:
Answer: Disclosed to clients
Soft dollar arrangements are permissible under Section 28(e) of the Securities Exchange Act but must be disclosed to clients due to the conflict of interest they create.
Which ethical principle requires an investment adviser to treat all clients fairly and not favor certain clients at the expense of others?
Answer: Fair dealing
The principle of fair dealing requires advisers to treat all clients equitably, including allocation of investment opportunities and pricing of services.
An adviser who simultaneously recommends a stock to clients and short-sells the same stock for personal gain is violating which duty?
Answer: The duty of loyalty
Simultaneously recommending a stock to clients while personally short-selling it is a direct violation of the duty of loyalty as the adviser profits from client losses.