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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Regulatory, Governance and Ethical Aspects of Portfolio Managers

A PMS distributor is dealing with a prospective client. Which practice is consistent with the code of conduct expected of distributors of portfolio management services?

A PMS distributor should disclose all commissions and conflicts of interest to the client before the sale. Guaranteeing returns, showing only the best year, or splitting investments to avoid the minimum ticket are misleading or circumventing practices and are not acceptable.

  1. AGuaranteeing a minimum annual return to win the mandate
  2. BDisclosing all commissions and any conflict of interest to the client before the saleCorrect
  3. CQuoting only the best-performing year of the portfolio manager
  4. DAdvising the client to split the investment into small amounts to stay below the minimum ticket size

Explanation

Distributors must make fair disclosure of commissions and conflicts so the client can decide with full information. Guaranteeing returns is prohibited, cherry-picking performance is misleading, and splitting investments to bypass the minimum is a circumvention of the regulations.

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