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

A portfolio manager's client is a distributor's long-standing friend. Which action by the distributor best reflects the ethical requirement relating to conflicts of interest?

The distributor should disclose upfront any commission or incentive earned from a PMS recommendation and recommend only what suits the client's needs and risk profile. Concealing or delaying disclosure, or choosing products for higher commission, breaches ethical and regulatory conduct norms.

  1. ARecommend the PMS offering the higher distributor commission, since the client trusts the distributor
  2. BDisclose to the client any commission or incentive earned from recommending a particular PMS and recommend only what is suitableCorrect
  3. CAvoid disclosing commissions because the client has not asked about them
  4. DDisclose commissions only after the client has invested

Explanation

Distributors must act in the client's interest, make suitable recommendations and disclose all commissions and conflicts upfront. Recommending on commission basis or hiding or delaying disclosure breaches the code of conduct and the transparency requirement.

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