Series 63 Fiduciary Duty Practice Questions

Correct answer: C. May be permissible only if the adviser discloses the soft-dollar arrangement and reasonably determines the client received execution and services of value consistent with best-execution obligations, given the totality of circumstances

Soft-dollar arrangements are not automatically prohibited, but they implicate the adviser's fiduciary duty of best execution. An adviser directing brokerage in exchange for research/benefits must disclose the practice and be able to reasonably justify that the client received execution and services of overall value consistent with best-execution obligations. Not simply the lowest available commission in isolation.

• AA. Incorrect. Best execution looks at overall value, not the lowest commission on each trade, and soft-dollar arrangements are permissible under disclosed, justified conditions.
• BB. Incorrect. Nondisclosure would itself be a fiduciary breach given the conflict of interest involved; the arrangement is not a purely private matter between adviser and broker-dealer.
• CC. Correct. Disclosure plus a reasonable best-execution determination is required.
• DD. Incorrect. Best execution and soft-dollar disclosure obligations apply squarely to investment advisers exercising brokerage discretion; the grant of discretion is what brings them into play.

• Source: 15 U.S.C. § 78bb, accessed October 2026

Correct answer: C. Utmost good faith, full and fair disclosure of material facts, and loyalty and care in the client's best interest

Investment advisers are fiduciaries under both the Uniform Securities Act and the SEC's interpretation of the Investment Advisers Act. That status imposes an affirmative duty of utmost good faith, full and fair disclosure of all material facts, and an obligation to act with undivided loyalty and reasonable care in the client's best interest, not merely a contractual or transaction-level standard.

• AA. Best execution is only one component of the fiduciary duty, not the whole standard. Advisers owe broader duties of disclosure, loyalty, and care.
• BB. The adviser standard exceeds mere reasonable-basis suitability; it's a fiduciary duty, a higher standard than what applies to broker-dealer registered representatives and their principals.
• CC. Correct. Investment advisers are held to a fiduciary standard of utmost good faith, full and fair disclosure of material facts, and loyalty and care in the client's best interest.
• DD. The duty isn't limited to the advisory agreement's express terms. Fiduciary obligations exist independent of and beyond contractual language.

• Source: NASAA Model Rule 102(a)(4)-1 (Unethical Business Practices of Investment Advisers, IARs and Federal Covered Advisers), accessed October 2026

Correct answer: A. Before discretion is first exercised; a verbal grant does not satisfy the rule

FINRA Rule 3260(b) bars a member or registered representative from exercising discretion in a customer's account unless the customer has given prior written authorization to a stated individual and the member has accepted the account in writing. A time-and-price exception exists for a specific order for a definite amount of a specified security, but it does not cover full discretion. A telephone grant leaves the March 2 trades without the required written authorization, and no grace period follows the first discretionary trade.

• AA. Correct. Prior written authorization is required before discretion is exercised, so an oral grant is insufficient from the first trade.
• BB. The rule sets no 30-day window tied to account opening; written authority must come before discretion is exercised.
• CC. The rule is not open-ended. Written authorization must exist before discretion is exercised, not at some later point.
• DD. No rule allows ten business days after the first discretionary trade. The only relief is time-and-price discretion on a specific order, which does not cover full discretion.

• Source: FINRA Rule 3260 (Discretionary Accounts), accessed November 2026

Correct answer: C. Guaranteeing a minimum rate of return to retain a client relationship

Guaranteeing a specific or minimum performance result is a prohibited practice under the Uniform Securities Act and NASAA model rules, since investment returns cannot be assured and such guarantees are inherently misleading. Disclosure of conflicts, seeking best execution, and prioritizing client interests are all affirmative components of the duty of loyalty and care.

• AA. Disclosing conflicts of interest is a core fiduciary obligation, consistent with (not an exception to) the duty owed to clients.
• BB. Seeking best execution is a routine fiduciary obligation an adviser owes clients when handling their transactions, entirely consistent with fiduciary duty.
• CC. Correct. Guaranteeing a minimum rate of return is a prohibited practice. No adviser can ensure investment performance. Making it inconsistent with (the exception to) fiduciary duty rather than an expression of it.
• DD. Placing client interests ahead of the adviser's own is the definitional core of fiduciary duty, not an exception to it.

• Source: NASAA Model Rule 102(a)(4)-1 (Unethical Business Practices of Investment Advisers, IARs and Federal Covered Advisers), accessed October 2026

Correct answer: A. Churning, which is a violation of the agent's fiduciary duty regardless of the discretionary authorization on file.

Churning. Excessive trading disproportionate to a client's objectives, in a manner that primarily benefits the agent through commissions. Is a fiduciary breach regardless of valid discretionary authority. Discretion governs whether trades may be placed without prior consent, not whether the trading frequency itself is appropriate.

• AA. Correct. Excessive, commission-driven trading with no meaningful benefit to the client is churning, and this remains a fiduciary violation regardless of the discretionary authorization on file.
• BB. Discretionary authority covers decisions like security selection, timing, and quantity. It doesn't license trading as frequently as desired purely to generate commissions.
• CC. Sending trade confirmations satisfies a notice/recordkeeping requirement but doesn't cure excessive, commission-motivated trading.
• DD. The violation exists at the time the excessive trading occurs; it doesn't depend on the client later revoking discretionary authority.

• Source: NASAA Model Rule 102(a)(4)-1 (Unethical Business Practices of Investment Advisers, IARs and Federal Covered Advisers), accessed October 2026
• Source: NASAA Model Rule 502(b) (Prohibited Conduct of Investment Advisers, IARs and Federal Covered Investment Advisers), accessed October 2026

Correct answer: B. No, because discretion limited solely to time and price for a single trading day does not require prior written authorization.

Discretion over time and/or price only, limited to a single day, is not considered "full" discretionary authority and may be accepted orally. Full discretion (over asset, action, and amount) requires written authorization. Choice D misapplies the 10-business-day rule, which governs when full discretion must be reduced to writing, not time-and-price orders.

• AA. This overlooks the narrow time-and-price exception, which permits this kind of single-day discretion without prior written authorization.
• BB. Correct. Discretion limited to time and price for a single trading day's order falls within the recognized exception and doesn't require prior written authorization.
• CC. Wrong. This misstates the rule entirely; broker-dealer agents, not just IARs, can exercise this narrow time-and-price discretion under proper conditions.
• DD. There's no rule giving oral discretionary authority a fixed 10-business-day validity; the time-and-price exception is limited to that single trading day.

• Source: NASAA Model Rule 102(a)(4)-1 (Unethical Business Practices of Investment Advisers, IARs and Federal Covered Advisers), accessed October 2026

Correct answer: D. An investment adviser representative providing ongoing investment advice for compensation

Fiduciary duty attaches to the advisory relationship itself: a person who provides ongoing investment advice for compensation as an investment adviser representative owes clients undivided loyalty and care. Unsolicited order execution, back-office processing, and general publications do not, standing alone, create an advisory relationship or fiduciary status.

• AA. Executing a client-directed unsolicited trade for a commission is an order-taking function, not an ongoing advisory relationship, so it doesn't itself create fiduciary status.
• BB. Distributing general research to the public isn't personalized advice to a specific client and doesn't establish the individualized relationship a fiduciary duty requires.
• CC. A transfer agent processing a routine address change performs a purely ministerial task with no advisory relationship to the client.
• DD. Correct. Investment adviser representatives who provide ongoing advice for compensation are fiduciaries under the Uniform Securities Act, owing duties of loyalty and care.

• Source: NASAA Model Rule 102(a)(4)-1 (Unethical Business Practices of Investment Advisers, IARs and Federal Covered Advisers), accessed October 2026
• Source: NASAA Model Rule 502(b) (Prohibited Conduct of Investment Advisers, IARs and Federal Covered Investment Advisers), accessed October 2026

Correct answer: A. Disclose its capacity in writing and obtain client consent before completion of the transaction

Principal trading creates an inherent conflict of interest because the adviser is on the opposite side of the client's transaction. The fiduciary standard requires the adviser to disclose its capacity in writing and obtain the client's consent before the transaction is completed, ensuring the client is informed while the conflict is still avoidable.

• AA. Written disclosure of the adviser's capacity and client consent obtained before the trade completes is exactly what fiduciary duty requires for principal transactions.
• BB. Disclosing capacity only after the fact, on a later statement, comes too late. Consent must be obtained before the transaction is completed.
• CC. Oral consent isn't sufficient and principal trades are not exempt from disclosure; written disclosure and consent are required.
• DD. Separate broker-dealer registration in every state of client residence isn't the operative requirement here. The fiduciary safeguard is disclosure and consent, not additional BD licensing.

• Source: Investment Advisers Act Section 206, 15 U.S.C. 80b-6 (prohibited transactions by investment advisers), accessed October 2026
• Source: Uniform Securities Act (1956) Section 102 (advisory activities), accessed October 2026