NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
An investment adviser has a client who is a 68-year-old retired teacher with low risk tolerance and a need for regular income. The adviser, wanting to meet a sales target, recommends a high-risk small-cap thematic scheme and states that the client 'cannot lose money over the long term'. Which TWO ethical lapses are present?
The lapses are unsuitable advice and a misleading assurance. A high-risk small-cap scheme does not match a retiree's low risk tolerance and income need, and claiming the client cannot lose money gives a false guarantee for a market-linked product.
- AUnsuitable advice and a misleading assurance of returns or safetyCorrect
- BDelay in KYC and failure to renew registration
- CExcess disclosure and over-documentation
- DCharging fees in advance and refusing to share the fee schedule
Explanation
A high-risk scheme for a low-risk-tolerance retiree needing income fails the suitability requirement. Saying the client cannot lose money is a misleading guarantee, since market-linked products carry risk. The other options describe issues not present in the facts.
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