NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
Mrs. Nair, aged 68, tells her investment adviser she depends on investment income for living expenses and cannot tolerate capital loss. The adviser, to earn higher commission, wants to place her mostly in a high-risk product. Which ethical principle is primarily violated if he does so?
The principle violated is suitability and acting in the client's best interest. Her need for stable income and low loss tolerance makes a high-risk product inappropriate, and recommending it for commission places the adviser's interest above the client's.
- ASuitability and acting in the client's best interestCorrect
- BRotation of securities
- CConfidentiality of client data
- DTimely redress of grievances
Explanation
Recommendations must match the client's risk profile, needs and capacity for loss. Pushing a high-risk product for commission contradicts her stated need and puts adviser interest above the client's. Confidentiality and grievance issues are not what is breached here.
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