NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
An investment adviser realises that an earlier recommendation made to a client was based on an input error in her own analysis, and the client has incurred a small loss. What is the most appropriate ethical response?
The adviser should promptly tell the client about the error, explain its implications, and correct the advice. Honesty, transparency and acting in the client's interest require disclosure of material mistakes. Concealing the error or blaming market volatility would be misleading and a breach of professional integrity.
- ASay nothing, since the market could have moved against the client anyway
- BPromptly inform the client of the error and its implications and correct the adviceCorrect
- CCorrect the advice in the records but not tell the client to avoid worry
- DBlame market volatility in the next review report
Explanation
Honesty and professional integrity require the adviser to inform the client promptly about a material error and take corrective steps. Concealing it or attributing it to markets is misleading and denies the client the chance to decide with full information.
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