Finance Appendix E Brokers or dealers giving incidental advice

ANSWERS TO CHAPTER QUESTIONS

Web Chapter E Regulation

1) To create a fair and efficient market for products with knowledgeable consumers.

2) The general standards of proper professional behavior are:

a) Competency : Know how to handle a task

e) Compliance: Adhere to all regulatory standards

f) Documentation: Keep records as support for operations and recommendations

3) Because you could be competent overall but not be familiar with the key terms of a

4) You are an investment advisor if you have all three of the following:

5) The following categories of people are exempt from the Investment Advisers Act:

a) Bank or bank holding company.

b) Accountants, lawyers, engineers, and teachers whose services are incidental to

profession.

c) Brokers or dealers giving incidental advice

h) Those with less than 15 clients

i) Those who provide only insurance services

6) Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,

advisors actively managing more than $110 million in assets must register with the

7) Because he or she renders investment advice as part of planning activities. For

example, investment advice is explicitly or implicitly part of all comprehensive

financial plans.

8) Because the broker-dealer can be held liable for the actions of their “associates”.

9) Yes—most states require a written exam, often NASD Series 65. Having a CFP®

10) Because suitability is at the heart of a potential conflict. The conflict is between

selling a product you and the firm you represent benefit from, and the interests of the

client you also represent. Suitability helps resolve the difficulty in the client’s favor.

12) A registered representative may have three masters, the client, the brokerage firm and

13) The principles of the CFP Code of Ethics are:

(1) Integrity

(2) Objectivity

14) Commingling of client and advisor assets can lead to advisors direct access to client

funds for personal use and may make more difficult the recordkeeping of who is

entitled to what assets.

15) Examples of CFP rule of objectivity violations, and their resolutions may include:

a) Recommendations that provide the advisor with greater compensation

16) You can only use the term fee-only if all your revenues, all of the time come directly

from your clients.

18) The number of recommendations may vary; the criterion is the correct amount to

achieve client goals.

19) Recommendations must be communicated in an appropriate manner to assist the

client in decision making. The planner must educate the clients so that they

Problems

1

Jackson has a conflict of interest between himself and his clients that has impaired his

ability to make decisions. See SEC regulation bullet point 8.d, Jackson is required to

and the client should jointly decide on goals, needs and priorities before any

recommendations are made or implemented.” Jackson should broaden the number of

firms he does business with and decide on recommendations without giving consideration

to the size of the commission.

2

Marion is required to disclose any holdings she is personally invested in which was her

first mistake. According to the Reporting section of the General Standards of Proper

Answers to CFP® Questions

Question

Answer

Question E.1

A

Question E.2

A

Question E.3

C

Question E.4

D

Question E.5

B

Question E.6

B

Question E.7

D