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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Key Regulations

An investment adviser is assessing a client's investments. The adviser says: 'The fund returned 12% last year, so it will give you 12% every year; I assure it.' Which regulatory principle is most directly violated, and why?

The adviser violates the rule against assuring or guaranteeing returns. Advice must be fair, not misleading, and make clear that past performance is no guarantee of future results, so promising 12% every year is prohibited.

  1. ASegregation of activities, because advice and distribution are mixed
  2. BMaintenance of records, because the advice was not stored
  3. CProhibition on assuring or guaranteeing returns, since advice must be fair and not misleadingCorrect
  4. DFee cap, because fees exceeded the limit

Explanation

Advisers must not promise or guarantee returns; past performance does not assure future results. The statement is a misleading assurance. The facts mention nothing about fees, records or distribution, so the other options do not apply.

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