Client Suitability & Fiduciary Duty Flashcards

When an investment adviser has a conflict of interest, the fiduciary duty requires:

Answer: Disclosing the conflict and obtaining informed consent, or eliminating the conflict

Fiduciary duty requires either eliminating conflicts of interest or fully disclosing them to allow the client to give informed consent.

Which scenario demonstrates a potential breach of fiduciary duty?

Answer: Recommending a proprietary fund without disclosing the adviser's financial interest in it

Recommending proprietary products without disclosing the adviser's financial interest violates the duty of loyalty and disclosure requirements.

For elderly clients showing signs of cognitive decline, investment advisers should:

Answer: Take extra precautions, document interactions carefully, and consider involving trusted contacts

When cognitive decline is suspected, advisers should exercise extra care, document interactions, and may involve trusted contacts to protect the client's interests.

Best execution requires investment advisers to:

Answer: Seek the most favorable terms reasonably available under the circumstances

Best execution requires advisers to seek the most favorable terms reasonably available, considering price, speed, likelihood of execution, and other relevant factors.

When must an investment adviser disclose material changes to Form ADV?

Answer: Annually, and promptly when material changes occur

Form ADV must be updated annually and promptly amended when any information becomes materially inaccurate.

The difference between a fiduciary standard and a suitability standard is that the fiduciary standard:

Answer: Requires advisers to put client interests first, not just recommend suitable investments

The fiduciary standard requires placing client interests above the adviser's own, while the suitability standard only requires recommendations be suitable—not necessarily best.