NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
An investment adviser is preparing to onboard a new client, Ms. Kapoor. Consider these statements. (I) The adviser must disclose, in writing, any material conflict of interest before giving advice. (II) The adviser may share Ms. Kapoor's portfolio details with a friendly mutual fund distributor to help cross-sell products, since the information is not sensitive. (III) The adviser must not guarantee returns or make misleading performance claims. Which statements are consistent with ethical and regulatory expectations?
Statements I and III are consistent with ethical and regulatory expectations. Advisers must disclose material conflicts of interest and must not guarantee returns or mislead about performance. Sharing a client's portfolio details with a distributor for cross-selling, without consent, breaches confidentiality and is therefore not acceptable.
- AI and II only
- BI and III onlyCorrect
- CII and III only
- DI, II and III
Explanation
Disclosure of material conflicts (I) and a ban on guaranteeing returns or misleading claims (III) are standard expectations. Statement II breaches client confidentiality, since personal financial information cannot be shared for cross-selling without consent, regardless of how sensitive the adviser thinks it is.
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