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.
Introduction

Related Articles
  1. 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.
  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

    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.
  4. Small Business

    How Often Should You Contact Clients?

    Figuring out how often an investment advisor should contact clients is not easy.
  5. Tech

    Advisors Need to Talk Less, Ask and Listen More

    Financial advisors spend a lot of time giving their clients advice on how to invest their money. But what they often forget to do is listen.
  6. Financial Advisor

    What To Do When Your Client Behaves Badly

    As a financial advisor managing your client's assets is only part of the job; sometimes you have to manage your client, as well.
  7. 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.
  8. 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.
  9. Financial Advisor

    Top Tips for Inheriting a Book of Clients

    Inheriting another advisor's book of clients can be a big boon. Here are some tips on how to handle the transition.
  10. Tech

    An Inside Look At Internal Auditors

    Find out why these number crunchers are part of every chief officer's dream team.
Frequently Asked Questions
  1. What Are the Components of a Risk Premium?

    Learn the five main risks that comprise the risk premium and how they affect investors.
  2. What Is an Odd-Lot Buyback?

    Odd-lot buybacks involve lots of less than 100 shares. Learn how companies get these shares back.
  3. How is a company's share price determined?

    Understand the concept behind the Gordon growth model and what it is used to measure. Learn how a company's share price is ...
  4. What is the difference between real estate and real property?

    Understand how real estate is legally different from real property and the implications of that difference for each property ...
Trading Center