RAA Professional Standards & Competencies 2 — Questions and Answers
Question 1: An RAA advisor discovers a clerical error in a client's annuity contract that benefits the client financially. What is the professional obligation?
- Disclose the error to the insurer and correct it (Correct answer)
- Keep silent since the client benefits
- Notify the client only
- Report only if the error exceeds $1,000
Correct answer: Disclose the error to the insurer and correct it
Advisors must uphold honesty and integrity by disclosing errors to all relevant parties, regardless of who benefits.
Question 2: Which of the following best describes the 'know your client' (KYC) standard for annuity advisors?
- Documenting a client's financial situation, goals, risk tolerance, and time horizon (Correct answer)
- Verifying the client's identity for anti-money laundering purposes only
- Collecting a client's social security number for tax reporting
- Confirming the client can afford the premium payment
Correct answer: Documenting a client's financial situation, goals, risk tolerance, and time horizon
KYC requires a comprehensive understanding of the client's full financial profile to make suitable recommendations.
Question 3: A client asks an RAA advisor to recommend an annuity primarily because it offers the highest commission. What standard does this violate?
- Suitability standard (Correct answer)
- Licensing standard
- Continuing education standard
- Anti-money laundering standard
Correct answer: Suitability standard
Recommending products based on commission rather than client need violates the suitability standard requiring recommendations to serve the client's best interest.
Question 4: When must an annuity advisor provide a client with a free-look period disclosure?
- At the time the annuity contract is delivered (Correct answer)
- Only if the client requests it
- Before the application is submitted
- Within 90 days of policy issuance
Correct answer: At the time the annuity contract is delivered
Free-look disclosures must be provided when the contract is delivered so clients can review and return the policy within the allowed period.
Question 5: Which regulatory body primarily oversees the licensing and conduct of annuity advisors in the United States?
- State insurance departments (Correct answer)
- The Federal Reserve
- The SEC exclusively
- FINRA exclusively
Correct answer: State insurance departments
Insurance products including annuities are primarily regulated at the state level by state insurance departments.
Question 6: An advisor learns confidential financial information about a client during the fact-finding process. Under professional standards, this information may be shared:
- Only with the client's written consent or as required by law (Correct answer)
- With other advisors in the same firm freely
- With the insurer without restriction
- With family members if they are listed as beneficiaries
Correct answer: Only with the client's written consent or as required by law
Client confidentiality requires that personal financial information only be disclosed with explicit consent or when legally mandated.
Question 7: What is the primary purpose of errors and omissions (E&O) insurance for annuity advisors?
- To protect the advisor against claims of professional negligence or mistakes (Correct answer)
- To replace the client's loss if an annuity underperforms
- To cover the insurer if the advisor sells unsuitable products
- To fulfill state licensing renewal requirements
Correct answer: To protect the advisor against claims of professional negligence or mistakes
E&O insurance protects advisors financially if clients allege harm due to professional errors or omissions in advice.
RAA Professional Standards & Competencies 2
An RAA advisor discovers a clerical error in a client's annuity contract that benefits the client financially.
What is the professional obligation?