Investment Advisory Regulation and Compliance
Core concepts
Regulation sets the legal floor beneath every advisory action. Candidates should know the difference between registration/licensing (who may act) and conduct rules (how they must act), plus the fiduciary versus suitability standards. Key concepts include know-your-client and know-your-product duties, disclosure of conflicts and compensation, best-execution obligations, recordkeeping, marketing and advertising limits, custody and client-asset segregation, and complaint handling. Understand the supervisory chain: regulator, firm compliance function, and the individual adviser.
Traps in questions
Questions love to blur disclosure versus consent (telling a client is not the same as getting permission), suitability versus fiduciary duty (fiduciary is broader and requires putting the client first), and personal versus firm responsibility (the firm's policies do not excuse an individual's misconduct). Watch for 'always/never' answer choices and for scenarios where a rule is satisfied in form but not substance - e.g., disclosing a conflict in fine print.
Worked rule of thumb
When a scenario involves a possible conflict, apply the D-C-M test: Disclose it clearly, Consent where required, and Mitigate or avoid it if it cannot be managed fairly. If any one of the three fails, the conduct is likely non-compliant. Example: an adviser receives a higher commission on Product A than Product B; recommending A solely for the commission fails the 'client-first' element even if disclosed.
Exam strategy
Read for the duty owed before reading the answer options, and eliminate choices that shift risk to the client without informed consent.