Ethics & Professional Responsibility Flashcards
7 cards from real Series 66 – Uniform Combined State Law Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Ethics & Professional Responsibility flashcards as text
An investment adviser representative recommends a mutual fund share class that pays the adviser's firm a 12b-1 fee. What is the adviser's primary obligation?
Answer: Disclose the conflict of interest to the client
Advisers owe a fiduciary duty to fully disclose material conflicts of interest such as compensation from recommended products.
An agent recommends a highly speculative options strategy to an 80-year-old retiree whose stated objective is capital preservation. This is best described as:
Answer: An unsuitable recommendation
Recommending securities without reasonable grounds that they fit the client's objectives, age and risk tolerance is a dishonest or unethical practice.
Which of the following is covered by the Section 28(e) soft-dollar safe harbor?
Answer: Research reports used in the adviser's investment decisions
Section 28(e) protects paying more than the lowest commission for eligible brokerage and research services that assist the adviser's decision-making.
An investment adviser wants to sell securities from its own inventory to an advisory client. What must occur?
Answer: Written disclosure and client consent before completion of the transaction
Principal transactions require disclosure of the adviser's capacity and the client's consent before the transaction is completed.
Which action involving discretion is generally permitted without written discretionary authorization?
Answer: Choosing the time or price of a transaction the client already specified
Time and price discretion is an exception; discretion over security, amount or action requires written authorization.
An agent tells a client, "I guarantee you will not lose money on this investment." This is:
Answer: A prohibited guarantee against loss
Guaranteeing a client against loss is a dishonest or unethical practice regardless of the product or waiver.
Excessive trading in a client's account, driven mainly by the commissions it generates, is known as:
Answer: Churning
Churning is excessive trading relative to the client's objectives, typically assessed by control, turnover and cost-to-equity.
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