Chapter 10 - Conflicts of Interest and Fiduciary Issues Flashcards Preview

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Flashcards in Chapter 10 - Conflicts of Interest and Fiduciary Issues Deck (24):

Excessive trading is also called _______



Churning, or excessive trading, is recommending or making a trade simply to ______

generate a commission


Most basic conflict of interest is the client's _____ vs the professional's _______

net worth vs net worth


All transactions recommended or made must be in the best interest of the _____. If not, they are considered excessive



Excessive trading can happen in both ______ and non-______ accounts

discretionary and non-discretionary


An IAR is not permitted to borrow from a client unless that client is actually a

- BD
- an affiliate of the IA
- a lending institution


An IAR or IA may not loan money to a client unless the firm is

- a lending institution
- loan is to an affiliate


NASAA does not prohibit _____ from lending or borrowing from customers, but they must comply with margin and lending rules



For BDs that do lend to customers, they must

- for margin accounts, a written margin agreement must in place promptly after first trade on margin
- for other loans, written agreement must be in place


Professionals CANNOT share in a client's profit or loss. When violated, this typically looks like

- agreeing to work for a percentage of gains during a year
- reimbursing clients for losses


An IA can enter into "performance-based" compensation only with the following parties

- high net worth individuals ($2m in net worth or $1m investing with firm)
- qualified purchasers (individuals with more than $5m or corps with over $25m)
- business development companies
- private investment companies (no more than 100 owners)
- registered investment companies
- certain advisory firm personnel (officers, directors, IARs)
- non residents of the US


CANNOT discuss a client's information unless:

- client consents to it
- is required by law
- is required by a court order


"Selling away" is

when an agent sells securities not sold through their BD


4 methods of market manipulations

- taking part in a buy/sell transaction that doesn't involve an actual transfer (a fake purchase or sale)
- intentionally entering in identical buy and sell orders for the same security (false trading activity)
- buying or selling security in a series of transactions to bid price up or down (painting the tape)
- using false information to open and trade in an account


If an adviser is acting as both the IA and the Principal (ie they are selling the client securities that they actually own), they must

get written consent prior to the trade by the customer by the date the transaction is complete


Agency cross transactions are when an IA is acting as the ______ to both parties



In a agency cross transaction, the IA may only advise _______

one party


In an agency cross transaction, an IA must provide written ______ to the client and receive written ______

disclosure, consent


In an agency cross transaction, an IA must send written _______ to the client at or before the completion of each transaction.



An IA must annually disclose how many _________ transactions they have made during the year and the amount of ______ they received for them

agency cross transactions, commission


Anytime an IA recommends a security they personally own, they must ________

disclose it


If an IA acts against a recommendation to a client, they must _______

disclose it


Must abide by the duty of best ______ for all trades

best execution


An IA or IAR cannot engage in an activity through a ______ that would be illegal for them to do directly

3rd party or another person