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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues

An investment adviser discovers that a fee quoted in the signed agreement was lower than the fee actually debited from a client's account due to a billing system error. Which action is most consistent with ethical conduct?

The adviser should promptly disclose the billing error to the client and refund the excess fee. Ethical conduct demands honesty and transparency, so quietly keeping, adjusting or waiting for the client to notice would breach the duty of fair dealing.

  1. AWait for the client to notice the difference before taking any action
  2. BRetain the excess amount as an advance against future fees without informing the client
  3. CDisclose the error promptly to the client and refund the excess amountCorrect
  4. DAdjust the excess against the client's next portfolio gains silently

Explanation

Ethical conduct requires honesty, transparency and fair dealing with clients. An adviser must promptly disclose the error and correct it by refunding the excess. Retaining or silently adjusting the amount conceals the error and breaches the duty to act in the client's interest.

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