Short scenario cards on prohibited adviser conduct, conflicts of interest, and disclosure requirements tested on the Series 65 and 66 exams.
34 cards · basic cards · AI-written, checked twice. Edit anything.
- An adviser purchases 100 shares of XYZ stock, then recommends it to clients the next day. What prohibited practice is this?
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Front-running; trading ahead of customer recommendations- An adviser tells a client 'This bond fund will earn at least 6% annually, guaranteed.' What is prohibited?
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Making guarantees or projections about future investment performance- An adviser charges 5% of assets annually for simple index fund recommendations. What principle is violated?
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Charging excessive fees; compensation must be reasonable for services provided- An adviser learns from a client call that a company will announce layoffs tomorrow, then trades the stock before the announcement. What is violated?
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Insider trading rules; prohibition on trading on material nonpublic information- An adviser recommends a mutual fund that pays higher commissions than alternatives. The client is unaware of this difference. What is violated?
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Duty to disclose all conflicts of interest- An adviser asks a client to lend $50,000 at 8% interest. What is prohibited?
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Borrowing money from clients (limited exceptions exist)- An adviser deposits client funds and personal firm funds in a single account. What is violated?
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Commingling funds; client assets must be kept separate- An adviser recommends aggressive growth stocks to a 75-year-old retiree with low risk tolerance. What is violated?
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Suitability rule; recommendations must have reasonable basis and suit client profile- An adviser tells clients she holds a CFA credential she does not actually possess. What is prohibited?
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Misrepresentation of education, qualifications, or professional credentials- An adviser makes excessive trades in a client account, generating high commissions but providing no clear investment benefit. What is this called?
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Churning; prohibited practice of excessive trading to generate commissions- A client instructs an adviser not to buy volatile securities. The adviser buys call options anyway. What is violated?
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Duty to follow client instructions and respect investment objectives- An adviser's Form ADV states no outside business affiliations. Later, the adviser starts a separate investment company but does not amend the form. What is violated?
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Duty to amend disclosures promptly when material facts change- An adviser receives $10,000 from an insurance company and then endorses their annuity product in his newsletter without disclosing the payment. What is prohibited?
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Failure to disclose compensation received for endorsements or recommendations- A client instructs an adviser to sell a position. The adviser delays the order three weeks to avoid realizing a loss. What is violated?
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Duty to execute client instructions promptly; blocking orders is prohibited- An adviser recommends a product mainly because it pays high commissions, not because it best suits the client's needs. What standard is violated?
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Fiduciary duty; adviser must prioritize client interests over own compensation
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