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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Key Regulations

Ms. Kavita Rao, a registered investment adviser, has a client Mr. Sharma whose risk profile shows low risk tolerance. She wants to recommend a high-risk small-cap fund because it offers her firm a higher fee arrangement elsewhere. Which regulatory principle does this primarily violate?

This violates the duty to give suitable advice and act in the client's best interest, along with the duty to avoid or disclose conflicts of interest. Recommending a high-risk fund to a low-risk client for the adviser's own benefit breaches the fiduciary standard required of investment advisers.

  1. ASuitability and acting in the client's best interest, with conflict of interest to be avoided or disclosedCorrect
  2. BRequirement to hold a minimum record retention of one year
  3. CRequirement of annual audit of the adviser's accounts only
  4. DRequirement that advice must always be given in writing in regional language

Explanation

An adviser must act in the client's best interest, ensure advice is suitable to the client's risk profile, and avoid or disclose conflicts of interest. Recommending an unsuitable product for the adviser's own benefit violates these duties; the other options are unrelated to the facts.

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