ETHICAL PRACTICES AND FIDUCIARY OBLIGATIONS ON SERIES 66 EXAM

An important part of the Series 66 Exam is the section on Ethical Practices and Fiduciary Obligations. An investment adviser rep has fiduciary obligations to his/her clients. This means that the I.A. rep must always do what is in the best interest of the client, without taking into consideration the I.A. rep's own profit.

For example, let's suppose that James, an I.A. representative, determines that three mutual funds are suitable for Widow Jones, a client. Fund A, Fund B, and Fund C. All three are suitable in themselves, suitable for Widow Jones, and suitable insofar as they do not offend quantitative suitability. However, Fund A has an expense ratio of 1.25 percent and a front-end sales charge of 3.25 percent. Fund B has an expense ratio of 0.95 percent and a front-end sales charge of 3.50 percent. Fund C has an expense ratio of 0.45 percent and a front-end sales charge of 2.50 percent.

A fiduciary obligation means that James has an obligation to recommend Fund C because it will cost Widow Jones the least in yearly fund expenses, and it will also be the best bet for Widow Jones in terms of its sales charge, the lowest of all three funds.

Even though James would personally make more in commissions from selling Fund B, which has the highest sales charge, he may not allow his personal interests to color his decision and his obligation to do whatever is best for his client, Widow Jones.

Bob Eder's Study for the Series 66 Exam devotes a whole chapter and more to discussing fiduciary obligations. It gives real-life examples and embeds practice questions throughout the chapter.

Bob Eder's Study for the Series 66 Exam is available on Amazon. Here is the link to Amazon.

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