NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
Mr. Iyer, a 68-year-old retired clerk with a low risk appetite and a need for regular income, is advised by an investment adviser to put most of his corpus in a small-cap equity scheme because it offers the adviser the highest fee. Which ethical principle is most directly violated?
The principle of suitability is violated. Advice must match the client's risk profile, age, objectives and income needs. Recommending a high-risk small-cap scheme to a risk-averse retiree because it pays the adviser more also reflects an unmanaged conflict of interest and a failure to act in the client's best interest.
- ASuitability of advice based on the client's risk profile and needsCorrect
- BConfidentiality of client information
- CTimely redressal of grievances
- DMaintenance of records for the prescribed period
Explanation
The advice ignores the client's age, risk tolerance and income need and is driven by the adviser's fee. This breaches the duty to give suitable advice in the client's interest. Confidentiality, grievance handling and record keeping are not the issue in this scenario.
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
- Mr. Raman Iyer, an investment adviser, recommends a mutual fund scheme to a client and does not mention that the fund house pays his related…
- Ms. Kapoor, a 58-year-old retiree with a low risk appetite, wants steady income. Her adviser, Mr. Rao, is under pressure from his employer t…
- An adviser has a client who is a 68-year-old retired teacher with low risk tolerance and needs regular income. The adviser, wanting to meet …
- Mr. Rao, aged 68, a retired clerk with a low risk appetite and need for regular income, is advised by adviser Kiran to invest most of his co…
- An investment adviser has a client who is a 68-year-old retired teacher with low risk tolerance and a need for regular income. The adviser, …
- Ms. Kavita Rao, an investment adviser, learns from a friend at a listed company that the firm will announce a major order loss tomorrow. She…