NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
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 into a high-volatility small-cap scheme because it offers the adviser a higher fee. Which ethical principle is primarily violated?
The principle violated is suitability of advice. Recommending a heavy small-cap allocation to a low-risk retiree needing regular income ignores her profile and needs, and is motivated by the adviser's higher fee rather than the client's interest.
- ASuitability of adviceCorrect
- BTimely reporting of fees
- CRecord retention
- DConfidentiality of client data
Explanation
Advice must match the client's risk profile, objectives and needs. A high-volatility allocation for a low-risk retiree needing income is unsuitable, and it is driven by the adviser's fee, adding a conflict. The other duties are not the main breach here.
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