Fiduciary Duties & Suitability Standards 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 Fiduciary Duties & Suitability Standards flashcards as text
Under the Uniform Securities Act, investment advisers are held to which standard when dealing with clients?
Answer: Fiduciary standard
Investment advisers registered under the Uniform Securities Act are held to a fiduciary standard, requiring them to act in the client's best interest at all times.
Which of the following best describes the fiduciary duty of loyalty owed by an investment adviser to a client?
Answer: Placing the client's interests ahead of the adviser's own interests
The duty of loyalty requires investment advisers to place the client's interests above their own, avoiding or fully disclosing any conflicts of interest.
A broker-dealer registered under the Uniform Securities Act is generally held to which standard when making recommendations to clients?
Answer: Suitability standard
Broker-dealers are traditionally held to a suitability standard, meaning recommendations must be suitable for the client based on their financial situation and objectives.
Under the fiduciary standard, what must an investment adviser do when a conflict of interest exists?
Answer: Disclose the conflict and obtain client consent
Fiduciaries must disclose material conflicts of interest to clients and obtain informed consent before proceeding with a conflicted transaction.
Which of the following client factors is LEAST relevant when determining the suitability of an investment recommendation?
Answer: The adviser's commission rate
Suitability analysis focuses on client-specific factors such as time horizon, risk tolerance, and financial situation — not the adviser's compensation.
An investment adviser who executes transactions without the client's authorization in a non-discretionary account is most likely violating which duty?
Answer: Duty of loyalty
Unauthorized trading in a non-discretionary account violates the duty of loyalty because the adviser is acting outside the client's wishes and in potential self-interest.
What information is an investment adviser required to gather under the 'know your customer' principle before making a recommendation?
Answer: The client's financial situation, investment objectives, and risk tolerance
The know-your-customer principle requires advisers to gather comprehensive information including financial situation, objectives, and risk tolerance to make suitable recommendations.
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