STANDARD OF CARE OBLIGATION HAS THREE COMPONENTS: KNOW THEM FOR THE SERIES 66 EXAM

The Series 66 Exam covers the fiduciary obligations of I.A. reps when dealing with retail customers. Standard of care has three components and is not merely defined as putting a client's interests ahead of the rep's. 

The three components are diligence, care and skill. Diligence—It takes effort and work to come to an understanding of various investments and whether the investments make sense for retail customers in general. Care—It takes care in assessing whether the investments make sense for the particular clients who are being served by the rep. Skill—And finally, it takes skill in assessing whether the investments in question are applicable for the client in view of his or her other investments and investment experience and profile.

Here's how Bob Eder in his Study for the Series 66 Exam discusses standard of care:

Standard of Care— As a fiduciary, an investment adviser must always select the choice that benefits her client. If there is any doubt, the adviser should put herself in the position of the client, and should always choose the alternative that benefits the client, not herself. This is called the minimum "standard of care," below which the adviser or I.A.  representative violates his/her fiduciary duties. Here is what the SEC says: "Under the Care Obligation, you must exercise reasonable diligence, care, and skill when making a recommendation to a retail customer to: 1) understand potential risks, rewards, and costs associated with recommendation, and have a reasonable basis to believe that the recommendation could be in the best interest of at least some retail customers; 2) have a reasonable basis to believe the recommendation is in the best interest of a particular retail customer based on that retail customer’s investment profile and the potential risks, rewards, and costs associated with the recommendation and does not place the interest of the broker-dealer ahead of the interest of the retail customer; and 3) have a reasonable basis to believe that a series of recommended transactions, even if in the retail customer’s best interest when viewed in isolation, is not excessive and is in the retail customer’s best interest when taken together in light of the retail customer’s investment profile." (https://www.sec.gov/info/smallbus/secg/regulation-best-interest)

Bob Eder in his Study for the Series 66 Exam covers Standard of Care in detail in Chapter 16 on Fiduciary and Ethical Practices.

The Series 66 Exam covers Standard of Care, and NASAA's recently revised Series 66 Test Specifications lists Compensation under Section IV (H) (2) (2.4), so expect questions on the Series 66 Exam.

Here is the link to NASAA's Test Specifications for the Series 66 Exam. 

Study for the Series 66 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's Series 66 book on Amazon. For questions about Bob Eder's Series 66 Manual, Study for the Series 66 Exam, or questions in general about the Series 66 Exam, or about the Standard of Care, feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. See Bob Eder's Author Page on Amazon.com.