Investment Advice Licensing Flashcards

What is the 'best execution' obligation for UAE-licensed brokers?

Answer: The obligation to take all reasonable steps to execute client orders on the best possible terms, considering price, speed, and likelihood of execution

Best execution requires brokers to take all reasonable steps to obtain the best possible result for client orders, considering multiple factors: price, costs, speed, likelihood of execution, and order size.

What is 'churning' in investment management?

Answer: Excessive trading in a client's account primarily to generate commissions for the broker, not to serve the client's interests

Churning is the prohibited practice where a broker excessively trades a client's account to generate higher commissions, without regard for the client's investment objectives. It is a form of breach of fiduciary duty and is prohibited by SCA regulations.

What must a licensed investment advisor do when they cannot serve a client's best interest?

Answer: Disclose the conflict and, if it cannot be managed, decline to provide the service or advise the client accordingly

When a conflict of interest cannot be adequately managed, the licensed advisor must disclose it fully to the client and either refrain from providing the service or obtain the client's informed consent after full disclosure.

What is a 'discretionary mandate' or 'investment management agreement'?

Answer: A written agreement specifying the investment objectives, constraints, risk tolerance, and fee structure for a discretionary investment management relationship

An investment management agreement is a written contract between the client and the investment manager specifying objectives, constraints (e.g., no leveraged products), risk tolerance, fees, reporting requirements, and the manager's discretionary authority.

Under SCA regulations, what is required for an individual to act as an investment advisor?

Answer: Relevant qualifications, experience, and passage of SCA-approved examinations, plus employment at an SCA-licensed firm

Individuals providing investment advisory services must meet SCA requirements including relevant qualifications, work experience, and passing SCA-approved examinations. They must also be employed by an SCA-licensed entity.

What is a 'robo-advisor' and how does it fit into SCA regulation?

Answer: An algorithm-driven digital investment advisory service; still subject to SCA regulations requiring appropriate licensing and client suitability assessments

Robo-advisors provide automated, algorithm-based investment advice and portfolio management. Despite being digital, they provide regulated investment services and must be operated by SCA-licensed entities and comply with all relevant regulations including suitability.