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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Regulatory, Governance and Ethical Aspects of Portfolio Managers

Which of the following best describes a conflict of interest that a portfolio manager must avoid or disclose to clients?

Investing client funds in securities of the manager's associate without disclosure is a conflict of interest, because the manager's or group's benefit may override the client's. Regulations require such dealings to be avoided or fully disclosed. Charging agreed fees, reporting and segregating accounts are ordinary, compliant practices.

  1. ACharging a management fee as stated in the agreement
  2. BInvesting client funds in securities of the portfolio manager's associate without disclosing the relationshipCorrect
  3. CSending periodic reports to clients
  4. DMaintaining separate accounts for each client

Explanation

Investing client money in associates' securities without disclosure puts the manager's own interest ahead of the client's, which is a conflict of interest. The other options are normal, contractually agreed or mandated practices, so they are not conflicts.

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