Client Suitability & Fiduciary Duty Flashcards
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Read the first 6 Client Suitability & Fiduciary Duty flashcards as text
A registered investment adviser's fiduciary duty includes which two primary components?
Answer: Duty of care and duty of loyalty
The fiduciary duty of RIAs consists of the duty of care (act in client's best interest) and duty of loyalty (put client's interests first, disclose conflicts).
When gathering information for a client suitability assessment, which factor is LEAST relevant?
Answer: Client's neighbor's investment strategy
A client's neighbor's investment strategy is irrelevant to suitability—each client's situation must be evaluated individually.
The 'know your customer' (KYC) principle requires investment advisers to:
Answer: Gather sufficient information to understand clients' financial situations and needs
KYC requires advisers to gather comprehensive information about clients to provide suitable, appropriate investment advice.
An investment recommendation is suitable when it:
Answer: Aligns with the client's investment profile, objectives, and risk tolerance
Suitability requires that recommendations match the individual client's investment profile, including objectives, risk tolerance, and financial situation.
A client has a 30-year time horizon and high risk tolerance. Under the fiduciary standard, the adviser should:
Answer: Recommend a diversified portfolio weighted toward growth assets
For a client with long time horizon and high risk tolerance, a growth-oriented diversified portfolio is consistent with fiduciary duty and suitability.
Client profiles must be updated when:
Answer: There are significant changes in client circumstances, goals, or risk tolerance
Advisers must update client profiles when material changes occur in the client's life that affect investment needs—such as retirement, inheritance, divorce, or health changes.
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