Regulatory, Ethical, and Compliance Standards
The regulatory framework
Candidates must understand the distinction between a fiduciary standard (act in the client's best interest, disclose conflicts, avoid or manage them) and a suitability standard (recommendation must be suitable for the client). Know that fiduciary duty generally includes duties of care and loyalty, and that disclosure alone does not cure a conflict if the conflict is not managed.
Ethics and conduct
Know the core ethical principles: integrity, objectivity, competence, confidentiality, professionalism, and diligence. A frequent trap is the question that offers a technically legal but misleading action - legality is not the same as ethics. Another is the adviser who discloses a conflict but still acts on it without client consent. Confidentiality has limits: legal compulsion, client permission, or prevention of serious harm.
Compliance mechanics
Understand know-your-client requirements, recordkeeping, supervision, and the handling of client assets (custody, authorization, segregation). Client funds must never commingle with adviser funds. Marketing and performance presentation must be fair, accurate, and not misleading; hypothetical or backtested results must be labeled. Gifts and entertainment require disclosure and often pre-clearance.
Worked rule of thumb
When a question presents a conflict, the correct sequence is: identify it, disclose it clearly, obtain informed consent where required, and manage or avoid it. If the answer choices include "do nothing because it is disclosed," that is almost always wrong.
Exam traps
Watch for the adviser who trades on material nonpublic information, uses client information for personal benefit, or accepts an outside benefit that creates divided loyalty.