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 securities primarily to generate higher compensation, rather than to benefit the client, constitutes a breach of the fiduciary duty of loyalty.

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

Churning involves excessive trading primarily to generate commissions rather than to benefit the client, directly violating the adviser's duty of loyalty.

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

The prudent investor standard requires advisers to manage assets with the care, skill, and caution that a reasonable person in similar circumstances would exercise.

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

The Uniform Securities Act requires investment advisers to fully disclose material conflicts and obtain the client's informed consent before proceeding.

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

In a discretionary account, the investment adviser has written authority to make investment decisions and execute trades without obtaining client approval for each transaction.

Series 66 – Uniform Combined State Law Exam Practice Test

Series 66 – Uniform Combined State Law Exam Practice Test

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