NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
Which practice by an investment adviser is consistent with the ethical requirement of fair and honest communication with clients?
Explaining the risks, costs and limitations of a product along with its benefits is consistent with fair and honest communication. Guaranteeing returns, showing only the best performance period, or calling equity safe would be misleading and breach the adviser's ethical duty to the client.
- AGuaranteeing a minimum return on a market-linked product to win the mandate
- BHighlighting past returns only for the best performing period of a scheme
- CExplaining the risks, costs and limitations of a recommended product along with its benefitsCorrect
- DDescribing all equity products as safe in the long term to reassure the client
Explanation
Ethical communication is balanced and not misleading. This means disclosing risks and costs together with benefits. Guaranteeing returns on market-linked products, cherry-picking performance periods, or calling equity safe are misleading representations.
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