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NZX Adviser practice questions

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Question 1Regulatory framework and market conduct

Under the Financial Markets Conduct Act 2013, which activity requires a market services licence from the Financial Markets Authority?

  1. Selling your own residential property through a real estate agent
  2. Publishing general commentary about listed companies in a newspaper
  3. Operating a private chat group discussing share ideas
  4. Providing a discretionary investment management service to retail clients Correct answer.

Explanation

The Financial Markets Conduct Act 2013 requires providers of discretionary investment management services to retail clients to hold a market services licence issued by the FMA. General media commentary, private property sales and informal discussion groups are outside the licensed market services regime.

Question 2Regulatory framework and market conduct

An adviser holds a licence covering financial advice but wishes to start arranging client applications for a new managed fund. What must happen before that activity begins?

  1. The adviser must resign and apply as a new entity
  2. Nothing, because all licensed advisers may arrange any financial product
  3. The licence must be varied to cover the additional market service Correct answer.
  4. The provider of the fund must issue a written exemption

Explanation

A market services licence specifies the services the holder may provide, so adding a new service such as arranging requires a variation of the licence from the FMA. A licence does not automatically extend to services outside its stated scope.

Question 3Regulatory framework and market conduct

Which conduct most clearly breaches the fair dealing prohibition against misleading or deceptive conduct in relation to a financial product?

  1. Explaining in writing that fees reduce net returns over time
  2. Telling a client a capital-guaranteed product cannot lose money when the guarantee is conditional Correct answer.
  3. Giving a client a copy of the product disclosure statement before the meeting
  4. Describing a fund's past returns accurately and noting they are not a guide to future returns

Explanation

The FMCA prohibits misleading or deceptive conduct in relation to financial products, and an unqualified claim that a conditional guarantee prevents loss is misleading. Accurate disclosure of returns, fees and provision of the disclosure statement are consistent with fair dealing obligations.

Question 4Regulatory framework and market conduct

An adviser recommends a higher-commission product to a client whose circumstances clearly suit a lower-cost alternative. Which conduct obligation is most directly engaged?

  1. The requirement to hold client money in trust
  2. The requirement to give priority to the client's interests Correct answer.
  3. The requirement to publish an annual report
  4. The requirement to report large transactions to the FMA

Explanation

The FMCA imposes a duty on advisers and providers to give priority to the client's interests, and a recommendation driven by commission rather than suitability conflicts with that duty. The other listed obligations concern unrelated operational matters.

Question 5Regulatory framework and market conduct

Which document must a retail client receive before being asked to invest in a managed investment scheme?

  1. The adviser's personal tax return
  2. The provider's internal compliance manual
  3. A product disclosure statement for the offer Correct answer.
  4. The auditor's management letter

Explanation

Offers of financial products to retail investors generally require a product disclosure statement under the FMCA, and it must be given before the client commits. The other documents are internal or personal and are not disclosure documents for the offer.

Question 6Regulatory framework and market conduct

What is the primary purpose of the Financial Markets Authority in the New Zealand market?

  1. To guarantee investment returns for retail investors
  2. To set the official cash rate for the economy
  3. To promote and facilitate the development of fair, efficient and transparent markets Correct answer.
  4. To insure investors against fraud losses

Explanation

The FMA's statutory objective is to promote and facilitate the development of fair, efficient and transparent financial markets. It does not guarantee returns, set monetary policy or act as an insurer of investor losses.

Question 7Regulatory framework and market conduct

A client asks an adviser to explain why a particular KiwiSaver fund suits them. Which standard best describes the adviser's obligation?

  1. The advice must match the fund with the highest historical return
  2. The advice must be suitable for the client's financial situation and goals Correct answer.
  3. The advice must minimise the adviser's own administrative work
  4. The advice must follow whatever the client's friend recommends

Explanation

Personalised financial advice must be suitable for the client's circumstances and objectives under the FMCA and the Code of Conduct. Return-chasing, third-party preference or adviser convenience do not satisfy the suitability standard.

Question 8Regulatory framework and market conduct

Which statement about the Code of Professional Conduct for financial advice services is correct?

  1. It replaces the Financial Markets Conduct Act 2013
  2. It applies only to advice given about shares
  3. It applies only to advisers employed by banks
  4. It sets standards of competence, conduct and client care that advisers must meet Correct answer.

Explanation

The Code of Professional Conduct sets ethical and competence standards for financial advice services, including client care duties. It sits alongside the FMCA rather than replacing it and applies across advice about different product types.

Question 9Regulatory framework and market conduct

A financial advice provider discovers that an adviser has been giving advice outside the scope recorded for them. What is the most appropriate governance response?

  1. Ignore the issue if no client has complained yet
  2. Transfer the adviser's clients to a competitor
  3. Immediately publish the adviser's name in the media
  4. Review and restrict the adviser's scope while addressing the breach through supervision Correct answer.

Explanation

Providers must maintain systems and controls ensuring advice is given within the adviser's competence and recorded scope. The appropriate response is to correct the scope and supervise the adviser, not to wait for complaints or take publicity or transfer actions.

Question 10Regulatory framework and market conduct

An adviser wants to use a testimonial from a client that says the adviser's fund 'never loses money'. How should the adviser treat this material?

  1. Publish it only in social media, not in formal documents
  2. Not use it, because it is misleading about the nature of the investment Correct answer.
  3. Use it if the client signs a consent form
  4. Publish it unchanged because it comes from a client

Explanation

Advisers are responsible for representations they publish, and a claim that an investment never loses money is misleading regardless of who said it. Client consent does not cure misleading content, and the medium does not change the fair dealing obligation.

Question 11Regulatory framework and market conduct

A client refuses to provide information about their financial situation but insists on receiving personalised advice. What should the adviser do?

  1. Recommend the highest-risk product to compensate for missing data
  2. Invent reasonable assumptions and present them as the client's position
  3. Clearly explain the limitations and that the advice may not be suitable, and consider declining to give personalised advice Correct answer.
  4. Give the advice anyway and record that the client declined

Explanation

Suitability depends on knowing the client's circumstances, so where information is withheld the adviser must explain the limitation and may need to decline personalised advice. Proceeding silently or fabricating assumptions would breach the duty to give suitable advice.

Question 12Regulatory framework and market conduct

An adviser recommends switching a client from one managed fund to another. Which conflict of interest is most relevant to manage?

  1. The adviser may receive a commission or incentive from the new fund provider Correct answer.
  2. The new fund may have a different investment mandate
  3. The client's risk profile may have changed
  4. The client may prefer one fund's brand name

Explanation

Conflicts of interest arise where the adviser's own benefit, such as commission or an incentive, could influence the recommendation. Brand preference, mandate differences and risk profile changes are relevant to suitability but are not adviser conflicts.

Question 13Regulatory framework and market conduct

Which record-keeping practice best supports a financial advice provider's compliance with its conduct obligations?

  1. Storing records verbally with no written record
  2. Retaining the client's objectives, the advice given, the reasons for it and any conflicts disclosed Correct answer.
  3. Recording only the final product recommended
  4. Keeping records only for clients who complain

Explanation

Good records should capture the client's circumstances and objectives, the advice and rationale, and any conflicts disclosed so the advice can be reviewed later. Recording only the outcome or relying on verbal memory would not demonstrate suitability.

Question 14Regulatory framework and market conduct

A provider's advertising states that an investment is 'as safe as a bank deposit'. The product is an unsecured corporate bond. What is the main regulatory concern?

  1. The product has no product disclosure statement
  2. The advertisement is too short to explain the product
  3. The advertisement was not approved by the client
  4. The comparison is misleading about risk and may breach fair dealing requirements Correct answer.

Explanation

Comparing an unsecured bond to a bank deposit misrepresents the credit risk involved and is likely to breach the prohibition on misleading conduct. Length, client approval and disclosure status are not the central issue raised by the claim.

Question 15Regulatory framework and market conduct

An adviser is offered a paid overseas trip by a product provider shortly before recommending that provider's fund. What is the best course of action?

  1. Accept the trip and recommend the fund without mentioning it
  2. Accept the trip and delay the recommendation until the client forgets
  3. Accept the trip because incentives are always permitted
  4. Decline or manage the incentive and disclose any conflict to the client Correct answer.

Explanation

Incentives that could influence advice create a conflict that must be avoided, managed or disclosed. Accepting the trip and recommending the product without disclosure would undermine the duty to prioritise the client's interests.

Question 16Regulatory framework and market conduct

A financial advice provider is designing its internal complaints process. Which feature is most consistent with good conduct?

  1. Refusing to accept complaints about advice already given
  2. Forwarding all complaints to the FMA without investigating them
  3. Requiring complaints to be made only in person at head office
  4. Acknowledging complaints promptly and resolving them within a defined timeframe with records kept Correct answer.

Explanation

An effective complaints process acknowledges complaints promptly, investigates and resolves them within a defined timeframe and keeps records. Restricting access, refusing complaints or simply forwarding them to the regulator would not meet good conduct expectations.

Question 17Regulatory framework and market conduct

Which situation best illustrates a breach of the prohibition on false or misleading representations about a financial product?

  1. Providing a risk indicator in a product disclosure statement
  2. Stating in a disclosure document that returns are variable and not guaranteed
  3. Explaining a fund's fees in a clear table
  4. Claiming an investment is approved by the government when it has no such approval Correct answer.

Explanation

Claiming government approval where none exists is a false representation about the product and breaches the fair dealing provisions. Accurate disclosure of variability, fees and risk is required conduct, not a breach.

Question 18Regulatory framework and market conduct

An adviser moves to a new firm and wants to contact former clients. Which consideration is most relevant under conduct and privacy expectations?

  1. Whether the former firm's client list can be used depends on consent and any contractual or privacy constraints Correct answer.
  2. Client contact details may always be taken to a new employer
  3. Privacy law does not apply to financial advisers
  4. Former clients automatically belong to the adviser personally

Explanation

Client information is subject to privacy obligations and possibly contractual restraints, so an adviser must consider consent and any restrictions before using former employer records. Clients do not become the adviser's personal property and privacy law clearly applies.

Question 19Regulatory framework and market conduct

What does the term 'financial advice' generally require for it to be treated as personalised advice under the New Zealand regime?

  1. It must be a recommendation or opinion about a financial product made to a person in their circumstances Correct answer.
  2. It must be broadcast to a mass audience
  3. It must be given only by a lawyer
  4. It must be provided free of charge

Explanation

Personalised financial advice involves a recommendation or opinion about acquiring or disposing of a financial product, made in relation to the person's particular circumstances. Mass broadcasting, a legal qualification or charging no fee are not defining features.

Question 20Regulatory framework and market conduct

A provider identifies that a staff member has a personal shareholding in a company the firm regularly recommends. What control most directly addresses this conflict?

  1. Allowing the staff member to trade on inside information
  2. Increasing the staff member's sales target
  3. Requiring the staff member to disclose the holding and excluding them from relevant recommendations Correct answer.
  4. Removing the firm's conflicts policy

Explanation

Disclosure combined with exclusion from decisions where the personal holding could influence advice is a standard conflict management control. Raising targets or removing policy would aggravate the conflict, and trading on inside information is unlawful.

Question 21Regulatory framework and market conduct

An adviser provides a client with a product disclosure statement but recommends a product that does not meet the client's stated risk tolerance. Which statement best reflects the regulatory position?

  1. The client bears all responsibility because they received the statement
  2. Risk tolerance is irrelevant once a disclosure statement is provided
  3. Disclosure supports informed choice but does not replace the duty to give suitable advice Correct answer.
  4. Providing the disclosure statement cures any suitability problem

Explanation

Disclosure and suitability are separate obligations: a product disclosure statement informs the client, but the adviser must still ensure the recommendation suits the client's circumstances, including risk tolerance. Disclosure does not displace that duty.

Question 22Regulatory framework and market conduct

A firm wants to rely on a 'wholesale investor' exemption for a client. Which factor is most relevant to determining whether the client qualifies?

  1. Whether the client meets the statutory thresholds for wholesale status, such as investment activity or certification Correct answer.
  2. Whether the client has completed a suitability questionnaire
  3. Whether the client prefers a particular fund manager
  4. Whether the client has complained previously

Explanation

Wholesale investor status depends on meeting statutory criteria such as investment activity thresholds, certification or being an eligible entity. Suitability questionnaires, preferences and complaint history do not determine wholesale status.

Question 23Regulatory framework and market conduct

An adviser gives a client a verbal recommendation and later sends a short written summary that omits the key risks discussed. What is the main conduct risk?

  1. The verbal advice is invalid because it was not written
  2. The omission is acceptable because the risks were mentioned verbally
  3. The client must pay an additional fee for the summary
  4. The written record may misrepresent the advice and fail to evidence that risks were properly disclosed Correct answer.

Explanation

Records should accurately reflect the advice and the risks discussed, so a summary that omits key risks may misrepresent the advice and undermine the provider's ability to demonstrate compliance. Verbal advice is not invalid merely because it was not written.

Question 24Regulatory framework and market conduct

A provider's marketing team proposes targeting vulnerable clients with high-pressure urgency messaging for a complex derivative product. Which regulatory principle is most directly engaged?

  1. The obligation to advertise only in English
  2. The obligation to treat clients fairly and avoid misleading or high-pressure conduct Correct answer.
  3. The obligation to keep marketing budgets confidential
  4. The obligation to maximise the provider's short-term revenue

Explanation

Fair dealing and client care principles require providers to avoid misleading or high-pressure conduct, particularly toward vulnerable clients. Revenue maximisation, budget confidentiality and language choice are not the governing principles here.

Question 25Regulatory framework and market conduct

An adviser is unsure whether a proposed activity requires a licence. What is the most prudent approach consistent with the regulatory framework?

  1. Proceed and seek legal advice only if the FMA makes contact
  2. Ask a client to confirm the activity is permitted
  3. Seek guidance from the FMA or qualified advisers before commencing the activity Correct answer.
  4. Assume the activity is exempt because it is new

Explanation

Where licensing scope is uncertain, the prudent approach is to obtain guidance from the FMA or qualified advisers before starting the activity. Proceeding first, assuming exemption or relying on a client's view risks unlicensed conduct.

Question 26Regulatory framework and market conduct

Under the New Zealand financial advice regime, an adviser must prioritise the client's interests. Which statement best describes what this duty requires in practice?

  1. The adviser must place the client's interests above the adviser's own interests and above the interests of the adviser's firm when giving advice. Correct answer.
  2. The adviser must recommend the product with the lowest fee available in the market for every client.
  3. The adviser must follow whatever instruction the client gives, even where the adviser considers it unsuitable.
  4. The adviser must guarantee that the recommended product will perform as the client expects.

Explanation

The client-first duty means the adviser's recommendations and conduct must put the client's interests ahead of the adviser's and the firm's own commercial interests. It does not require choosing the cheapest product in the market, following unsuitable instructions, or guaranteeing outcomes.

Question 27Regulatory framework and market conduct

An adviser is designing a disclosure document for new retail clients. Which item is most clearly required to be disclosed under the conduct obligations for financial advice?

  1. The names of other clients the adviser has advised in the past year.
  2. The internal salary band of the adviser within the firm.
  3. The adviser's personal investment portfolio and tax position.
  4. Any conflicts of interest, including commissions or incentives, that could materially influence the advice. Correct answer.

Explanation

Disclosure obligations focus on information a client needs to make an informed decision, and material conflicts of interest such as commissions and incentives must be disclosed. Personal financial details of the adviser, internal remuneration bands, and other clients' identities are not required disclosures.

Question 28Regulatory framework and market conduct

A financial adviser provides services to a client and receives a complaint about the advice. The provider's internal complaints process has not resolved the matter within the required timeframe. What is the most appropriate next step consistent with the New Zealand dispute resolution framework?

  1. The provider should tell the client that no further avenue exists once the internal process is complete.
  2. The provider should ask the client to sign a waiver before any further discussion occurs.
  3. The provider should refer the client to an approved dispute resolution scheme that the provider belongs to. Correct answer.
  4. The provider should escalate the complaint directly to the Financial Markets Authority for adjudication.

Explanation

Financial advice providers must belong to an approved dispute resolution scheme, and unresolved complaints can be referred to that scheme for independent consideration. The FMA is a regulator, not a complaint adjudicator, and providers cannot close off a client's access to dispute resolution.

Question 29Regulatory framework and market conduct

An adviser recommends a managed fund to a client and receives a soft commission from the fund manager, being a contribution toward the adviser's conference travel. The adviser does not mention this to the client. Which statement best analyses the conduct risk?

  1. There is no issue provided the fund's returns have been strong over the past year.
  2. There is no issue because soft commissions are not cash payments to the adviser.
  3. There is an issue only if the client specifically asks whether the adviser receives any incentives.
  4. There is a disclosure risk because the incentive could materially influence the advice and should be disclosed to the client. Correct answer.

Explanation

Soft commissions and similar incentives can create a conflict of interest, and material conflicts must be disclosed so the client can assess the advice. The form of the benefit (cash or travel) and the fund's past performance do not remove the disclosure obligation, and disclosure is not conditional on the client asking.

Question 30Regulatory framework and market conduct

An adviser firm is reviewing how it supervises representatives who give financial advice on its behalf. Which control is most directly aligned with the provider's responsibility for the advice given under its licence?

  1. Requiring representatives to pay for their own external audits annually without reporting results to the firm.
  2. Reviewing a sample of advice files against documented advice standards and remediating any deficiencies found. Correct answer.
  3. Allowing representatives to set their own competence standards provided they hold a relevant degree.
  4. Relying on each representative's own professional membership as the sole quality check.

Explanation

A financial advice provider is accountable for the advice delivered under its licence, which requires active monitoring such as file reviews against documented standards and remediation of deficiencies. Professional memberships, unmonitored self-funded audits, and self-set standards do not give the provider the oversight it needs.

Question 31Client onboarding, suitability and disclosure

Under the Financial Markets Conduct Act 2013, which document must a financial adviser or broker provide to a retail client before giving personalised financial advice?

  1. A disclosure statement covering the adviser's fees, conflicts of interest and dispute resolution Correct answer.
  2. A copy of the adviser's internal compliance manual
  3. A product disclosure statement for every product discussed
  4. A signed client authority form

Explanation

The FMCA requires advisers and brokers to give retail clients a disclosure statement before providing a financial advice service. It must cover matters such as fees, commissions, conflicts of interest, and how complaints are handled, so the client can judge the adviser's incentives.

Question 32Client onboarding, suitability and disclosure

A client asks an NZX adviser to recommend shares. Which level of advice is being provided when the adviser considers the client's goals, financial situation and risk tolerance to make a specific recommendation?

  1. Class advice
  2. Personalised financial advice Correct answer.
  3. Execution-only service
  4. General product information

Explanation

Personalised financial advice is advice tailored to the client's particular circumstances, including their goals, financial situation and risk tolerance. A specific recommendation made after that analysis falls squarely within this category and triggers the full suitability and disclosure obligations.

Question 33Client onboarding, suitability and disclosure

An adviser is completing a client's onboarding file. Which information is most directly required to assess the client's risk tolerance for an equity portfolio?

  1. The client's preferred broker platform
  2. The client's tolerance for capital loss and investment time horizon Correct answer.
  3. The client's preferred method of contact
  4. The client's employer's name

Explanation

Risk tolerance assessment depends on the client's capacity and willingness to bear loss and the period over which they intend to invest. These factors determine whether an equity portfolio is suitable for the client's circumstances.

Question 34Client onboarding, suitability and disclosure

A new client refuses to provide information about their existing debts and income. What is the adviser's most appropriate course of action under the suitability obligation?

  1. Proceed with the recommendation and note the missing information
  2. Explain the limits on the advice that can be given and the consequences of incomplete information before proceeding Correct answer.
  3. Decline to open any account and terminate the relationship
  4. Recommend only low-risk products regardless of the client's goals

Explanation

The adviser must make the client aware that incomplete information limits the adviser's ability to assess suitability and may mean the advice is not personalised. The client can then decide whether to proceed on that informed basis rather than the adviser guessing or refusing outright.

Question 35Client onboarding, suitability and disclosure

Which statement best describes the purpose of the client money and property provisions when an NZX adviser holds client funds in a trust account?

  1. Client money may be used to settle the firm's own trading obligations temporarily
  2. Client money may be pooled with firm capital provided interest is credited to clients
  3. Client money need only be segregated when it exceeds a prescribed threshold
  4. Client money must be held separately from the firm's money and reconciled regularly Correct answer.

Explanation

Client money must be held in a separate trust account, kept apart from the firm's own funds, and reconciled on a regular basis. This protects clients if the firm becomes insolvent and prevents misuse of client funds.

Question 36Client onboarding, suitability and disclosure

An adviser recommends a particular managed fund and receives a commission from the fund manager. What must the adviser do to manage this conflict of interest?

  1. Recommend the fund only if the commission exceeds a set minimum
  2. Route the commission through a related party
  3. Disclose the commission to the client and ensure the recommendation is still suitable Correct answer.
  4. Avoid mentioning the commission to keep the advice simple

Explanation

A commission creates an incentive that must be disclosed so the client can weigh the advice. The adviser must also be satisfied the recommendation is suitable on its merits, independent of the commission.

Question 37Client onboarding, suitability and disclosure

A client's completed risk profile questionnaire indicates a conservative tolerance, but the client insists on a concentrated position in a single small-cap stock. How should the adviser respond?

  1. Refuse to accept the instruction under any circumstances
  2. Alter the client's risk profile to match the requested trade
  3. Execute the trade immediately because the client gave the instruction
  4. Document the suitability discussion, explain the risk mismatch, and record the client's informed instruction Correct answer.

Explanation

Where a client's instruction conflicts with their assessed profile, the adviser should discuss the mismatch and record that the client made an informed decision. Altering the profile to fit the trade would misrepresent the client's actual circumstances.

Question 38Client onboarding, suitability and disclosure

Which of the following is a key element that must be included in a client's investment agreement or terms of business at onboarding?

  1. A list of the adviser's other clients
  2. The adviser's personal investment portfolio
  3. A guarantee of investment returns
  4. The scope of services, fees and the basis on which advice is given Correct answer.

Explanation

The terms of business should clearly set out what services are provided, the fees charged and the basis on which advice is given. This ensures the client understands the relationship and the adviser's obligations before work begins.

Question 39Client onboarding, suitability and disclosure

A prospective client is a close relative of the adviser. What is the most appropriate action at onboarding?

  1. Decline the client automatically because related-party advice is prohibited
  2. Treat the relationship as immaterial and proceed normally
  3. Refer the client to a competitor without further discussion
  4. Disclose the relationship and manage the conflict in line with the firm's policy Correct answer.

Explanation

A personal relationship is a potential conflict that should be disclosed and managed under the firm's conflicts policy. This may include independent review or additional documentation, but it does not automatically prohibit the relationship.

Question 40Client onboarding, suitability and disclosure

Which statement correctly describes the difference between 'know your client' information and 'suitability' assessment?

  1. They are the same thing described in different words
  2. Suitability is only required for institutional clients
  3. KYC gathers facts about the client; suitability uses those facts to judge whether a recommendation fits Correct answer.
  4. KYC is only required when the client opens a margin account

Explanation

KYC is the fact-gathering stage, capturing identity, financial position, goals and risk tolerance. Suitability is the analytical step that applies those facts to determine whether a specific recommendation is appropriate for the client.

Question 41Client onboarding, suitability and disclosure

During onboarding, an adviser discovers the client has a large tax liability due in three months. How should this affect the suitability analysis for a long-term growth fund?

  1. It is irrelevant because the fund is a long-term product
  2. It means the client must be classified as a wholesale investor
  3. It should be considered because the client may need liquidity before the investment horizon Correct answer.
  4. It requires the adviser to recommend a margin loan

Explanation

A near-term liability affects the client's liquidity needs and shortens the effective investment horizon. Suitability analysis must consider whether the client can remain invested long enough for the product to perform as intended.

Question 42Client onboarding, suitability and disclosure

What does the term 'wholesale investor' generally signify in the context of NZX adviser onboarding?

  1. A client who trades more than a set number of times per year
  2. A client who meets specified eligibility criteria and therefore receives reduced disclosure protections Correct answer.
  3. A client who has appointed an adviser as attorney
  4. A client who invests only in New Zealand shares

Explanation

Wholesale investors meet defined eligibility criteria, such as investment activity or asset thresholds, and receive reduced disclosure protections compared with retail clients. Correctly classifying a client determines which disclosure and suitability obligations apply.

Question 43Client onboarding, suitability and disclosure

An adviser is onboarding a client who wants to invest borrowed money in equities. What is the most important suitability consideration?

  1. Whether the client has previously used a discount broker
  2. Whether the client prefers growth or dividend stocks
  3. Whether the client can service the debt and withstand losses on a leveraged position Correct answer.
  4. Whether the client has a smartphone to monitor prices

Explanation

Investing with borrowed money magnifies both gains and losses, so the adviser must assess the client's ability to service the debt and absorb losses. Leverage can turn a moderate market decline into a loss exceeding the client's original capital.

Question 44Client onboarding, suitability and disclosure

Which of the following best describes the adviser's obligation regarding record-keeping for client onboarding and advice?

  1. Records may be discarded once the trade settles
  2. Records of the client's circumstances, advice given and instructions should be retained as required by the firm's obligations Correct answer.
  3. Only signed trade confirmations need to be kept
  4. Records may be kept informally in the adviser's personal notes

Explanation

Advisers must maintain records of the client's circumstances, the advice provided and the client's instructions, retained for the period required by law and firm policy. These records evidence suitability and support dispute resolution.

Question 45Client onboarding, suitability and disclosure

A client instructs an adviser to place a trade but explicitly says they do not want any advice. How should the adviser document this?

  1. As a discretionary managed account
  2. As a personalised recommendation
  3. As general advice to the public
  4. As an execution-only instruction with the client's acknowledgement that no advice was given Correct answer.

Explanation

When a client directs a trade without seeking advice, the service is execution-only and should be documented as such, including the client's acknowledgement. This distinguishes it from personalised advice and clarifies the adviser's role.

Question 46Client onboarding, suitability and disclosure

What is the primary purpose of the client onboarding process from a regulatory perspective?

  1. To gather the information needed to provide suitable advice and meet disclosure obligations Correct answer.
  2. To transfer investment risk from the client to the adviser
  3. To maximise the number of products sold to each client
  4. To replace the need for ongoing client reviews

Explanation

Onboarding exists to collect the information needed to assess suitability and to deliver required disclosures before advice is given. It establishes the factual and documentary foundation for a compliant advice relationship.

Question 47Client onboarding, suitability and disclosure

An adviser recommends a diversified portfolio to a client with a moderate risk profile. The client later complains the portfolio lost value in a market downturn. Which factor is most relevant to whether the adviser met the suitability obligation?

  1. Whether the adviser personally profited from the recommendation
  2. Whether the client read every page of the disclosure statement
  3. Whether the client checked prices daily
  4. Whether the portfolio was suitable when recommended given the client's circumstances Correct answer.

Explanation

Suitability is judged by whether the recommendation was appropriate for the client's circumstances at the time it was made, not by subsequent market outcomes. A suitable diversified portfolio can still lose value in a downturn without the adviser breaching the obligation.

Question 48Client onboarding, suitability and disclosure

Which of the following is an example of a conflict of interest that should be identified during onboarding?

  1. The client's existing insurance cover
  2. The adviser's firm receiving a higher commission on one product than another Correct answer.
  3. The client's preferred investment sector
  4. The client's planned retirement date

Explanation

Differential commissions create an incentive to recommend the higher-paying product, which is a conflict of interest. Identifying and disclosing such incentives allows the client to assess the independence of the advice.

Question 49Client onboarding, suitability and disclosure

A client's circumstances change materially six months after onboarding, including a job loss. What is the adviser's most appropriate response if they become aware of this?

  1. Immediately liquidate all holdings without discussion
  2. Reassess suitability and consider whether the existing portfolio remains appropriate Correct answer.
  3. Ignore it because onboarding is complete
  4. Transfer the client to another adviser automatically

Explanation

A material change in the client's circumstances may affect the suitability of existing holdings, so the adviser should reassess and discuss the implications. Onboarding is not a one-off event; advice must remain appropriate as circumstances evolve.

Question 50Client onboarding, suitability and disclosure

What should an adviser do if a client provides information that appears inconsistent, such as declaring a modest income but a very large investment portfolio?

  1. Accept the information without question
  2. Seek clarification and document the explanation before relying on the information Correct answer.
  3. Report the client to the authorities immediately
  4. Adjust the client's figures to more plausible amounts

Explanation

Inconsistent information should be clarified so the adviser can rely on accurate facts for suitability and any anti-money-laundering checks. The clarification and its explanation should be documented in the client file.