CMFAS RES5 Conflicts, Fair Dealing & Ethical Marketing question: satisfy applicable rules

CMFAS RES5Conflicts, Fair Dealing & Ethical Marketing

The suitability standard is described as 'rules-based'. Under it, a representative must satisfy applicable rules such as Section 36 of the Financial Advisers Act, which requires that the representative:

A Guarantees the client a positive investment return over the recommended holding period
B Discloses his exact commission in writing before every client meeting, even an introductory one
C Has a reasonable basis for any investment-product recommendation to a person who may reasonably be expected to rely on it
D Avoids all conflict-of-interest situations at all times, even where the conflict could be fully disclosed to the client

Show the answer and explanation

Answer: C. Has a reasonable basis for any investment-product recommendation to a person who may reasonably be expected to rely on it

The text states the suitability standard is rules-based and that Section 36 FAA requires financial intermediaries and their representatives to have a reasonable basis for any recommendation made in respect of an investment product to a person who may reasonably be expected to rely on the recommendation.

Common mistake

Avoiding all conflicts is a fiduciary (principles-based) obligation, not the rules-based reasonable-basis requirement of the suitability standard.

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Original study material mapped to the public CMFAS RES5 syllabus. Unofficial, not endorsed by MAS or SCI. Verify figures and rules against current guidance before relying on them.