RIA Client Suitability & Fiduciary Duty 3

Question 1

An adviser who receives a referral fee from a third party for recommending a client must:

Accepted Answer

Disclose the fee arrangement to the referred client

Answer

Third-party compensation arrangements, including referral fees, must be disclosed to clients as material conflicts of interest.

Question 2

Which of the following represents the correct application of the duty of care?

Accepted Answer

Tailoring investment advice based on each client's unique circumstances and goals

Answer

The duty of care requires individualized advice based on each client's unique circumstances, objectives, and risk profile.

Question 3

When an investment adviser discovers an error in a client's account, the fiduciary duty requires:

Accepted Answer

Promptly correcting the error and notifying the client

Answer

Fiduciary duty requires prompt correction of errors and transparent communication with clients about mistakes in their accounts.

Question 4

The concept of 'informed consent' in the fiduciary context means:

Accepted Answer

Client understands and agrees after receiving full disclosure of all material facts and conflicts

Answer

Informed consent requires that clients have received and understood sufficient disclosure about conflicts and other material facts before agreeing.

Question 5

An adviser recommends liquidating a client's portfolio to reinvest in the adviser's new fund primarily because the adviser earns higher fees. This is an example of:

Accepted Answer

Breach of fiduciary duty

Answer

Recommending transactions primarily to benefit the adviser financially, not the client, is a breach of the fiduciary duty of loyalty.

(RIA) Registered Investment Advisor Practice Test

(RIA) Registered Investment Advisor Practice Test

RIA Client Suitability & Fiduciary Duty 3