NASAA Series 63Ethical Practices and ObligationsMedium
An agent has a client who consistently makes poor investment decisions, often leading to losses. The agent, out of concern for the client's financial well-being, decides to stop communicating with the client and ignores their calls and emails regarding new investment ideas. Which of the following best describes the agent's ethical violation?
- AUnauthorized trading
- BFailure to supervise
- CBreach of fiduciary duty
- DChurning
Show answer & explanationAnswer & explanation
Correct answer: C. Breach of fiduciary duty
An agent, particularly one with an advisory relationship, has a fiduciary duty to act in the client's best interest, which includes maintaining communication and addressing client inquiries. Deliberately ignoring a client, even with good intentions, is a breach of this fundamental duty, as it fails to provide the service and guidance expected.
Why the other options are wrong
- A. Unauthorized trading involves executing trades without client consent, which is not happening here as the agent is ignoring requests, not trading.
- B. Failure to supervise typically refers to a firm's or supervisor's failure to oversee an agent's activities, not an agent's direct interaction with a client.
- D. Churning is excessive trading for commissions, which is the opposite of ignoring a client's trading ideas.
Fiduciary Duty
A legal and ethical obligation for an agent to act in the best interests of their client, placing the client's interests above their own.
- Includes duties of loyalty, care, and good faith.
- Requires diligence, communication, and competence.
- Breach can lead to significant penalties and client losses.
Memory trick: Fiduciary duty is a loyal friend, always acting for you.