Chapter 5 Flashcards
Investment advisers have a fiduciary duty to act in the best interest of their clients, which includes:
- Having a reasonable and objective basis for the investment advice provided
- Ensuring that the investment advice is suitable
- Obtaining the best execution for its client’s securities
- Disclosing potential conflicts of interests
- Consulting with other professionals
Broker-dealers recommendations versus Investment Advisers recommendations
Broker-dealers = suitable
IA’s = best interest
Uniform Prudent Investor Act (UPIA)
-Based on Modern Portfolio Theory
-Examines trade off between risk and reward
-Analyzes portfolio as a whole
-Recognizes need for diversifcation
-Places no categorical restrictions on investments
Soft Dollar Arrangements
Acceptable
An IA may pay higher commissions for trade execution in return for “soft” dollars if used to acquire services that will benefit its advisory clients
Acceptable:
1. Research reports
2. Analysis
3. Market Data
4. Seminars
5. Software used for analysis
Soft Dollar Arrangements Unacceptable
1) Computer hardware
2) Telephone lines
3) Hiring personnel (salaries)
4) Rent
5) Travel, entertainment or meals
Soft dollar arrangements need to be disclosed on?
Form ADV Part 2 or Brochure