NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
Caselet: Rakesh, a 58-year-old retiree, has told his investment adviser that he cannot tolerate losses on his retirement corpus. The adviser earns a higher fee if Rakesh invests in a high-volatility thematic fund offered by an associate firm. What should the adviser do to act ethically?
The adviser should disclose the conflict of interest and recommend only products matching Rakesh's low risk tolerance. Client interest comes first, so a volatile fund that pays a higher fee should not be pushed, and disclosure must be made upfront rather than after investment or not at all.
- ADisclose the conflict of interest and recommend only what suits Rakesh's low risk toleranceCorrect
- BRecommend the thematic fund and disclose the fee after the investment
- CRecommend the thematic fund because Rakesh can reassess later
- DAvoid mentioning the associate firm to prevent confusion
Explanation
The adviser must put the client's interest first, disclose any conflict, and keep recommendations consistent with the stated risk tolerance. A volatile thematic fund contradicts Rakesh's low tolerance, and delayed or omitted disclosure breaches ethical duties.
Did you get it right without looking?
One question tells you little. A timed set on Ethical Issues shows your real accuracy, how long you take and where you lose marks.
More Ethical Issues questions
- Mrs. Rao, a 68-year-old retiree with low risk tolerance and a need for regular income, is advised by an adviser to put 70% of her savings in…
- An investment adviser registered with SEBI learns that a close friend plans to buy shares of a listed company on the basis of the adviser's …
- Ms. Kavita Rao, an investment adviser, receives a non-public tip from a friend in a listed company that its quarterly results will be far be…
- An investment adviser is preparing to onboard a new client, Ms. Kapoor. Consider these statements. (I) The adviser must disclose, in writing…
- Under the ethical framework for investment advisers, which of the following best describes the duty of 'suitability' when an adviser recomme…
- An investment adviser discovers that a fee quoted in the signed agreement was lower than the fee actually debited from a client's account du…