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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues

Mr. Rao, a retired client, has a low risk tolerance and needs steady income. His adviser earns a higher commission on a product whose features are riskier than a lower-commission alternative that better matches Mr. Rao's profile. Which approach reflects the adviser's ethical duty?

The adviser should recommend the product suited to Mr. Rao's low-risk, income-focused profile and disclose the conflict of interest. Suitability and the client's best interest override the adviser's commission, and disclosure must be proactive, not only on the client's request.

  1. ARecommend the higher-commission product, as long as the commission is paid by the product provider
  2. BRecommend the product that suits Mr. Rao's profile and disclose any conflict of interestCorrect
  3. COffer both products without any guidance, so the client takes full responsibility
  4. DRecommend the higher-commission product and mention commission only if the client asks

Explanation

The adviser must act in the client's best interest and place suitability above personal gain. Conflicts of interest must be disclosed upfront and not only on request. Leaving the client without guidance or favouring the commission product both violate this duty.

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