Financial Advisory Ethics Flashcards

What is the duty of disclosure for a financial adviser?

Answer: To disclose all material information including fees, risks, and conflicts of interest

Financial advisers must proactively disclose all material information including product risks, fees, charges, and any conflicts of interest to enable informed decision-making.

What is professional indemnity insurance for financial advisers?

Answer: Insurance that protects the adviser against claims arising from professional negligence

Professional indemnity insurance protects financial advisers against claims and legal costs arising from errors, omissions, or negligence in their professional services.

What ethical principle requires a financial adviser to be competent?

Answer: Professionalism and competence

The principle of professionalism and competence requires advisers to maintain adequate knowledge, skills, and expertise to provide sound financial advice.

What should a financial adviser do when a client wants to invest in a product beyond their risk tolerance?

Answer: Advise against it, explain the risks, and document the client's decision if they insist

The adviser should explain why the product may be unsuitable, outline the risks, and if the client still insists, document the client's informed decision and acknowledgement of the risks.

What is the purpose of the client fact-find document?

Answer: To record comprehensive information about the client's financial situation and needs

The client fact-find document records detailed information about the client's financial situation, objectives, risk appetite, and existing coverage to form the basis of suitable recommendations.

What is the significance of the 'best advice' obligation?

Answer: The adviser must recommend the product that best meets the client's needs from available options

The best advice obligation requires the adviser to recommend the product that is most suitable for the client's specific needs and circumstances from the available options.