Actions that are considered either unethical behavior or conflicts of interest include the following:

  • Misrepresentations - IA cannot misrepresent his/her qualifications, services or fees to clients or potential clients

  • Third-party research - IA cannot use or rely on third-party research for investment recommendations or reports without disclosing this fact to the client

  • Advertisements - IA cannot use an advertisement that does not comply with the guidelines of the Investment Advisers Act of 1940

  • Failure to state important facts - for example, failing to state the tax implication of a transaction

  • Failure to follow a client's instructions

  • Making misleading or untrue statements, including the following:
    • Stating or implying that either the state Administrator or the SEC approves or endorses the IA
    • Making exaggerated claims about investment performance
    • Stating or implying that either the Administrator or the SEC approves of a specific investment
    • Making inaccurate statement regarding commissions or markups
    • Giving inaccurate market quotations
    • Misrepresenting the client's account status

Exam Tips and Tricks
The exam is likely to contain a number of questions on prohibited behaviors such as misleading statements and misrepresentations. Consider this sample question:

  1. All of the following are unethical behaviors prohibited under the Uniform Securities Act EXCEPT:
    1. deliberately failing to follow a client's instructions.
    2. executing a trade the IA believes to be unsuitable at the client's orders.
    3. telling a client that the IA is a Registered Investment Advisor and has therefore been approved by the state Administrator.
    4. failing to tell a client that making trades recommended by the IA will subject the client to a large tax liability.

The correct answer is "b": the IA must follow client orders. It would be unethical only if the IA recommended the inappropriate trade.


Related Articles
  1. Managing Wealth

    Asset Manager Ethics: Acting In the Benefit of Clients

    Investment managers should always act to benefit the client. Learn what actions managers should take on a client's behalf.
  2. Financial Advisor

    Manage Your Clients' Expectations

    You can't control how they react to the market, but you can help them understand the reality of the situation.
  3. Financial Advisor

    How Client Behavior Impacts Retirement Planning

    While many clients know they should save for retirement, they don't. Here's how advisors can help modify their bad financial behavior.
  4. Investing

    How Google & Twitter Compete with Facebook's Instant Articles (FB, GOOG)

    Look at how Facebook's Instant Articles feature works, and how it differs from the new Accelerated Mobile Pages feature from Google and Twitter.
  5. Financial Advisor

    Losing a Client Is Not Always The End of The World

    Losing a client is never pleasant for a financial advisor, but sometimes this is a better outcome than continuing the relationship.
  6. Financial Advisor

    What Is Your Client's Willingness and Ability to Take Risk?

    Financial advisors must carefully consider a client's willingness and ability to take investment risks, including tax concerns and liquidity needs.
  7. Financial Advisor

    How to Construct an Annual Review for Clients

    One of the best things that advisors can provide to clients is an annual review of their financial situation. Here are some guidelines.
  8. Personal Finance

    When (And How) To Fire A Client

    Firing the clients who take more of your time and effort than the revenue they contribute is a great way to improve your bottom line.
  9. Financial Advisor

    How Financial Advisors Manage Liquidity Risk

    Financial advisors have to carefully consider a client's willingness and ability to take investment risks, including tax concerns and liquidity needs.
  10. Financial Advisor

    Managing Client Expectations in a Volatile Environment

    Managing client expectations during periods of market volatility is challenging. Here are some ways to go about it.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center