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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues

Under the ethical principles expected of an investment adviser, which duty is MOST directly breached when an adviser recommends a product mainly because it pays a higher commission, even though a cheaper and equally suitable alternative exists?

The adviser breaches the duty to act in the client's best interest and avoid conflicts of interest. Choosing a product for its higher commission puts personal gain ahead of client welfare when a cheaper, equally suitable option exists, which is a fiduciary failure rather than a mere administrative lapse.

  1. ADuty to act in the client's best interest and avoid conflicts of interestCorrect
  2. BDuty to maintain records for the prescribed period
  3. CDuty to file periodic returns with the regulator
  4. DDuty to renew registration on time

Explanation

Recommending a product for the adviser's own higher commission puts the adviser's interest ahead of the client's. This breaches the fiduciary duty to act in the client's best interest and to avoid or manage conflicts of interest. The other options are compliance duties not engaged by this conduct.

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