NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
An investment adviser has two clients with identical risk profiles. He identifies a limited allotment in an attractive bond issue. Which allocation approach best reflects the ethical principle of fair treatment of clients?
He should allocate pro rata under a predetermined, documented policy applied equally to eligible clients. Fair treatment means no client is favoured for fees or personal reasons, and a written policy makes the allocation transparent and verifiable.
- AAllocate the entire quantity to the client paying the higher advisory fee
- BAllocate to his own family account first and then to clients
- CAllocate pro rata based on a predetermined, documented policy applied equally to eligible clientsCorrect
- DAllocate to the client who first responded to his call this morning, ignoring suitability
Explanation
Fair dealing requires that clients with similar profiles are treated equitably, using a predetermined and documented allocation policy. Favouring higher-fee clients or himself creates conflicts and unfairness. Ignoring suitability also breaches the duty to recommend appropriate products.
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