NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
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 corpus in a high-commission, volatile product because Kiran earns a larger payout from it. Which ethical principle is MOST directly violated?
The principle most directly violated is suitability and the duty to place the client's interest first. A volatile, high-commission product recommended to a retired, low-risk investor needing regular income shows the adviser's payout driving the advice rather than the client's profile and needs.
- ASuitability and the duty to put the client's interest firstCorrect
- BConfidentiality of client records
- CTimely record retention
- DFair allocation of trades
Explanation
The product mismatches the client's age, risk profile and income need, and the recommendation is driven by the adviser's commission. This breaches the duty to act in the client's best interest and recommend suitable products. Confidentiality, record retention and allocation are not the issue here.
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
- Which of the following is the best example of an adviser maintaining objectivity when preparing a client's financial plan?
- An investment adviser registered under the SEBI (Investment Advisers) Regulations, 2013 learns that a client's spouse, who is not the client…
- Which of the following is an example of an adviser breaching the ethical duty of confidentiality towards a client?
- Adviser Nisha manages advice for two clients. Before issuing a written recommendation to clients to buy a mid-cap stock, she buys the stock …
- An investment adviser has two clients with identical risk profiles. He identifies a limited allotment in an attractive bond issue. Which all…
- An investment adviser is asked by a client to recommend a product. The adviser knows that one product pays him a higher commission through a…