NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
Under the ethical framework for investment advisers, which of the following best describes the duty of 'suitability' when an adviser recommends a product to a client?
Suitability means the recommended product must fit the client's risk profile, financial goals, time horizon and overall circumstances. Commission, recent performance or the adviser's own holdings are irrelevant to suitability and can introduce conflicts of interest that harm the client.
- AThe product must match the client's risk profile, financial goals, and circumstancesCorrect
- BThe product must carry the highest commission among available alternatives
- CThe product must have delivered the best returns in the last year
- DThe product must be one that the adviser personally holds
Explanation
Suitability requires that advice be based on the client's risk profile, objectives, time horizon, and financial position. Commission levels, past returns or the adviser's own holdings are not the test and may create conflicts of interest.
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