Ethics & Fiduciary Obligations
Series 65 Section IV: disclosure and contracts, fees and performance fees, custody and discretion, conflicts of interest, and the practices that get advisers and agents barred.
32 terms in this unit.
Form ADV Part 2 Brochure Delivery
Deliver 48 hours before the contract, or at signing with a 5-business-day exit.
Advisory Contract Requirements
Written, specific about fees, no assignment without consent, no waiver of rights.
Assignment of an Advisory Contract
Transferring a client contract requires the client's consent - including by change of control.
Performance-Based Fees & Qualified Clients
Allowed only for qualified clients: $1.4M with the adviser or $2.7M net worth (from June 29, 2026).
Prepaid Fees & Financial Requirements
Prepayment over $500, six months ahead, triggers net worth and balance sheet rules.
Custody
Holding, or having authority to obtain, client funds or securities.
Discretionary Authority
Deciding the asset, the amount, or buy versus sell - without asking first.
Third-Party Trading Authorization
Anyone other than the owner needs written authority to trade the account.
Principal Transactions by Advisers
Selling to or buying from a client for the adviser's own account needs consent each time.
Agency Cross Transactions
The adviser brokers a trade between an advisory client and another party.
Soft Dollars
Research and brokerage services received in return for directing client trades.
Fees, Compensation & Their Disclosure
Fees must be disclosed and reasonable in light of the services.
Wrap Fee Programs & Reverse Churning
One fee for advice and execution - unsuitable for clients who rarely trade.
Misrepresenting Registration & 'Investment Counsel'
Registration is not approval; 'investment counsel' is a restricted title.
Guarantees Against Loss
No one may guarantee a client against loss or promise a result.
Hedge Clause
Contract language that tries to waive the client's legal rights - prohibited.
Advertising & the Marketing Rule
Testimonials allowed with disclosures; performance must be fair and balanced.
Social Media & Electronic Communications
Business messages on any channel are communications that must be supervised and kept.
Borrowing From & Lending To Clients
Prohibited except with financial institutions or affiliates in narrow cases.
Sharing in Client Profits or Losses
Allowed for agents only with written approval and in proportion to their investment.
Selling Away
An agent selling securities outside the employing firm without its knowledge.
Commingling
Mixing client funds or securities with the firm's or the representative's own.
Market Manipulation
Creating false prices or false impressions of trading activity.
Code of Ethics & Personal Trading
Access persons report holdings on joining and annually, and transactions quarterly.
Outside Securities Accounts
Opening a personal account at another firm requires the employer's written consent.
Political Contributions (Pay-to-Play)
Contributions to officials can bar an adviser from paid government work for two years.
Protecting Vulnerable Adults
Firms may delay suspicious disbursements from seniors' accounts and report exploitation.
Client Confidentiality & Privacy
Client information stays confidential except with consent or as required by law.
Cybersecurity & Data Protection
Written safeguards, an incident response plan, and breach notice within 30 days.
Business Continuity & Succession Planning
A written plan for disasters and for the death or disability of key people.
Anti-Money Laundering (AML)
Know who the customer is, watch for suspicious activity, and report it.
Conflicts of Interest
Material conflicts must be eliminated or fully disclosed.