A financial firm provides tailored portfolio management advice to retail investors in exchange for an ongoing fee calculated as a percentage of assets under management. The firm does not execute transactions from its own account inventory or earn sales commissions on client trade executions. Under federal securities regulations, how is this firm defined, and what standard of care is it obligated to provide to its clients?
- The firm is defined as an Investment Adviser and is bound by a fiduciary duty to act in the client's best interest at all times.Answer
- BThe firm is defined as a Broker-Dealer acting in a principal capacity and is subject only to suitability requirements when charging markups.
- CThe firm is defined as a Self-Regulatory Organization (SRO) possessing statutory powers to bring criminal charges against registered persons.
- DThe firm is defined as a primary market issuer whose principal duty is distributing capital raised from equity offerings directly to corporate treasuries.
Answer
The firm is defined as an Investment Adviser and is bound by a fiduciary duty to act in the client's best interest at all times.
Under federal securities regulations, any firm that engages in the business of providing investment advice in exchange for compensation (such as an asset-based fee) is classified as an Investment Adviser. Investment Advisers owe a fiduciary duty to their clients, requiring them to act in the client's best interest at all times.
Step-by-Step Solution
Key Concept
Distinction between Investment Advisers and Broker-Dealers
Estimated Time:1m 0s