NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
An investment adviser receives a commission from a mutual fund house for recommending its scheme to a client, but does not tell the client. Which ethical issue arises most directly?
The key issue is an undisclosed conflict of interest. Receiving commission from a fund house creates an incentive that may bias the recommendation, and hiding it from the client breaches the adviser's duty of transparency and of acting in the client's best interest.
- AUndisclosed conflict of interestCorrect
- BInsufficient diversification of the client's portfolio
- CInadequate risk profiling method
- DIncorrect asset allocation drift
Explanation
A payment from a product provider creates an incentive to recommend that product irrespective of suitability. Not disclosing it to the client hides a conflict of interest. Diversification, profiling and drift are portfolio matters, not the issue described.
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