WMS Ethical Standards & Professional Conduct 3

Question 1

A wealth manager receives material non-public information about a merger from a client who is an executive at a public company. What must the advisor do?

Accepted Answer

Erect an information barrier and refrain from trading on or sharing the information

Answer

Using or sharing material non-public information constitutes insider trading; advisors must establish information barriers and not act on such information.

Question 2

The concept of 'informed consent' in wealth management primarily means:

Accepted Answer

The client understands and agrees to the risks, costs, and nature of recommended strategies before proceeding

Answer

Informed consent requires that clients genuinely understand the material facts, risks, and costs involved in a recommendation before they agree to it.

Question 3

A WMS professional manages both a charitable foundation and a private client who both want to purchase shares of a thinly traded stock. How should the advisor handle this order allocation?

Accepted Answer

Use a fair and consistent allocation policy disclosed to all clients in advance

Answer

Fair allocation policies must be pre-established, consistently applied, and disclosed to clients to avoid favoritism and conflicts of interest.

Question 4

Which of the following is the primary purpose of a wealth manager maintaining detailed client records?

Accepted Answer

To demonstrate the basis for advice given and protect both client and advisor interests

Answer

Detailed records document the rationale for recommendations, enabling the advisor to demonstrate they acted appropriately and in the client's best interest if questions arise.

Question 5

A wealth manager is asked to serve on the board of a local company whose stock some clients hold. What ethical step is essential before accepting?

Accepted Answer

Obtain approval from the firm and assess whether the role creates a material conflict of interest

Answer

Serving on a corporate board creates potential conflicts of interest; advisors must obtain firm approval and manage any conflicts through disclosure or recusal from related decisions.

(WMS) Wealth Management Specialist Certification Practice Test

(WMS) Wealth Management Specialist Certification Practice Test

WMS Ethical Standards & Professional Conduct 3