Series 66 – Uniform Combined State Law Exam Fiduciary Duties & Suitability Standards 2

Question 1

Which of the following activities would most likely constitute a breach of fiduciary duty by an investment adviser?

Accepted Answer

Recommending securities that generate higher commissions without client benefit

Answer

Recommending a diversified portfolio

Answer

Disclosing all fees in the Form ADV

Answer

Rebalancing a portfolio according to the client's stated objectives

Question 2

What is 'churning' in the context of investment accounts, and which fiduciary principle does it violate?

Accepted Answer

Excessive trading to generate commissions, violating the duty of loyalty

Answer

Failing to diversify a portfolio, violating the duty of care

Answer

Trading without disclosures, violating the duty to inform

Answer

Selling unsuitable products, violating the suitability standard

Question 3

Under the prudent investor standard, an investment adviser managing a discretionary account must:

Accepted Answer

Make investment decisions as a prudent person would with regard to risk, return, and the client's objectives

Answer

Maximize returns regardless of risk

Answer

Invest only in government securities

Answer

Follow the client's specific instructions on every individual trade

Question 4

An investment adviser has a material conflict of interest with a client. Under the Uniform Securities Act, the adviser must:

Accepted Answer

Disclose the conflict fully and obtain the client's informed consent

Answer

Terminate the advisory relationship immediately

Answer

Report the conflict to FINRA within 30 days

Answer

Transfer the account to a non-conflicted adviser

Question 5

Which of the following best describes a discretionary account managed by an investment adviser?

Accepted Answer

The adviser can make investment decisions without prior client approval on each trade

Answer

The client must approve each individual trade before execution

Answer

The client selects specific securities and the adviser executes them

Answer

The adviser can only trade pre-approved securities listed in the IPS

Question 6

Under the Uniform Securities Act, an investment adviser's fiduciary duty requires which of the following when recommending a security?

Accepted Answer

The recommendation must be in the client's best interest based on their profile

Answer

The security must be the highest-rated available

Answer

The security must be registered with the state administrator

Answer

The adviser must receive written confirmation from the issuer

Question 7

When is an investment adviser permitted to execute transactions in a client's account without obtaining prior client approval?

Accepted Answer

When the client has granted discretionary authority to the adviser in writing

Answer

Only when the client is traveling abroad

Answer

When the adviser believes the transaction is clearly beneficial

Answer

Whenever the transaction involves low-risk securities