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Series 65 Fiduciary Duty Practice Questions

Official outline
NASAA Series 65 Test Specifications (June 2023)
Questions on this page
6
Updated
Nov 3, 2026

  1. Question 1, medium

    An investment adviser pays a third party a cash referral fee for each new client the third party introduces. Which of the following is required for this solicitor arrangement to comply with disclosure obligations?

    • A.No disclosure is required to the client if the referral fee is paid as a single one-time payment for each client introduced
    • B.Disclosure is needed when the solicitor is also a registered representative of a broker-dealer, and is optional for any other solicitor who receives a flat fee per referral
    • C.Oral disclosure of the referral arrangement at the initial client meeting satisfies the requirement, with no written document needed
    • D.The client must receive written disclosure of the referral arrangement and fee structure prior to or at the time of entering into the advisory contract
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    Correct answer: D. The client must receive written disclosure of the referral arrangement and fee structure prior to or at the time of entering into the advisory contract

    Cash solicitor/referral arrangements generally require written disclosure to the prospective client describing the nature of the arrangement and the compensation involved, delivered before or at the time the advisory relationship begins, regardless of whether the fee is a one-time or ongoing payment.

    • A. Payment frequency doesn't exempt the arrangement from disclosure; any cash referral fee arrangement requires disclosure to the client.
    • B. The disclosure obligation applies to solicitor arrangements generally, not only when the solicitor is also a registered representative of a broker-dealer, and a flat per-referral fee does not make it optional.
    • C. Oral disclosure alone does not satisfy the requirement; written disclosure is required.
    • D. The client must receive written disclosure describing the referral relationship and fee structure before or at the time the advisory contract is entered into, which is the correct solicitor-disclosure requirement.

  2. Question 2, medium

    An adviser acts as investment adviser to Client A and, in the very same transaction, also acts as broker for the other side of the trade on behalf of Client B, receiving compensation from both parties. This is best described as:

    • A.A principal transaction
    • B.A routine transaction requiring no special treatment, since no proprietary inventory is involved
    • C.A prohibited transaction with no possible exemption
    • D.An agency cross transaction, requiring specific disclosure and consent
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    Correct answer: D. An agency cross transaction, requiring specific disclosure and consent

    An agency cross transaction occurs when an adviser (or an affiliate) acts as broker for both sides of a trade between two clients, earning compensation from each. Because of the inherent conflict, this arrangement requires specific written disclosure and client consent, distinct from a principal transaction where the adviser trades from its own inventory.

    • A. A principal transaction involves the adviser trading out of its own account/inventory with a client, not matching two different clients' orders against each other.
    • B. Because the adviser is compensated by both sides of the trade in the same transaction, this is exactly the kind of conflicted situation requiring special disclosure and consent, not routine treatment.
    • C. Agency cross transactions are not categorically prohibited; they are permissible when properly disclosed and consented to, so this overstates the restriction.
    • D. Acting as adviser to one client while simultaneously acting as broker for the other side of the same trade, and getting paid by both, is an agency cross transaction, which requires specific disclosure and client consent. The correct answer.

  3. Question 3, easy

    An adviser's obligation to always place the client's interests ahead of its own, including through the honest disclosure of conflicts of interest, is most closely associated with the:

    • A.Duty of care
    • B.Duty to maintain books and records
    • C.Duty of best execution
    • D.Duty of loyalty
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    Correct answer: D. Duty of loyalty

    Fiduciary duty is generally divided into the duty of care (competent, suitable advice based on the client's objectives) and the duty of loyalty (putting the client's interests first and eliminating or disclosing conflicts). Prioritizing client interests and disclosing conflicts falls under the duty of loyalty.

    • A. The duty of care concerns providing competent, well-researched advice and diligent execution; placing the client's interests first and disclosing conflicts is more specifically tied to the duty of loyalty.
    • B. Books and records requirements are a separate regulatory/recordkeeping obligation, unrelated to the substantive duty to place client interests first.
    • C. Best execution is a specific application of fiduciary obligation to trade execution, not the broad principle of prioritizing client interests and disclosing conflicts generally.
    • D. Correct. Prioritizing the client's interests over the adviser's own and disclosing conflicts of interest is the essence of the fiduciary duty of loyalty.

  4. Question 4, hard

    An advisory agreement with a retail client states: "The adviser will not be liable for any loss arising from the adviser's negligence, and the client waives all claims against the adviser under federal and state securities laws." How should this clause be evaluated?

    • A.It is inconsistent with the adviser's fiduciary duty and Section 215(a), because a client cannot waive the duty or the protections of the securities laws
    • B.It is acceptable if the adviser describes the clause in Form ADV Part 2A and the client signs the agreement
    • C.It is acceptable if the client receives a five-business-day right to cancel the agreement after signing
    • D.It is acceptable because informed consent to a waiver cures the conflict of interest the clause creates, provided the adviser discloses the clause in writing beforehand
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    Correct answer: A. It is inconsistent with the adviser's fiduciary duty and Section 215(a), because a client cannot waive the duty or the protections of the securities laws

    An adviser's federal fiduciary duty may be shaped by agreement, but it cannot be waived, and Section 215(a) of the Advisers Act voids any provision waiving compliance with the Act. A clause that purports to release the adviser from negligence and from securities-law claims is therefore misleading to a retail client.

    • A. Correct: the fiduciary duty and statutory protections are non-waivable, so the clause is void and misleading.
    • B. Disclosure and a signature do not make a prohibited waiver enforceable.
    • C. A cancellation right affects the contract term, not the non-waivable nature of the statutory protections.
    • D. Informed consent can address certain conflicts but cannot waive the fiduciary duty or the client's securities-law remedies, so written disclosure does not make the clause valid.

  5. Question 5, medium

    An adviser routes all client trades to an affiliated broker-dealer that charges higher commissions than several other qualified broker-dealers, without ever evaluating execution quality elsewhere. This practice most directly raises concerns about the adviser's:

    • A.Best execution obligations
    • B.Insider trading controls
    • C.State registration requirements
    • D.Books and records retention
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    Correct answer: A. Best execution obligations

    Advisers with trading authority owe clients a duty of best execution. Seeking the most favorable overall terms available under the circumstances, considering price, cost, and quality of execution. Not simply defaulting to an affiliate without periodic review of alternatives.

    • A. Correct. Consistently directing all trades to a higher-cost affiliated broker-dealer without ever comparing execution quality elsewhere directly implicates the adviser's duty to seek best execution for clients.
    • B. Insider trading involves misuse of material nonpublic information; routing trades to an affiliate without comparing execution quality doesn't itself describe an insider trading issue.
    • C. This scenario is about how trades are executed for existing clients, not about whether the adviser is properly registered in a state.
    • D. While recordkeeping is always relevant broadly, the specific conduct described. Never evaluating alternatives despite higher costs. Points squarely at a best-execution failure, not a books-and-records deficiency.

  6. Question 6, hard

    Each of the following constitutes a dishonest or unethical business practice by an investment adviser under the Uniform Securities Act and the NASAA Model Rule EXCEPT:

    • A.Disclosing to a client, prior to completion of a transaction, that the adviser is acting as principal for its own account, and obtaining the client's consent before completing the trade
    • B.Borrowing money from an advisory client who is not a bank, broker-dealer, or otherwise in the business of lending money, without adequate disclosure
    • C.Failing to disclose a material conflict of interest that could reasonably be expected to impair the rendering of unbiased investment advice
    • D.Charging an advisory fee that is unreasonable in relation to the services actually provided, with no justification for the disparity
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    Correct answer: A. Disclosing to a client, prior to completion of a transaction, that the adviser is acting as principal for its own account, and obtaining the client's consent before completing the trade

    Principal transactions are not prohibited outright; the Advisers Act and the NASAA Model Rule specifically require an adviser acting in a principal capacity to disclose that fact to the client and obtain client consent prior to completion of the transaction. Doing so correctly is the compliant procedure, not a violation. By contrast, borrowing from a client who isn't in the lending business without disclosure, failing to disclose material conflicts of interest, and charging unjustifiably unreasonable fees are each specifically enumerated as dishonest or unethical business practices under the Model Rule.

    • A. Correct. This is the exception. Disclosing principal trading and obtaining client consent before completing the transaction is exactly what the rules require, making it acceptable conduct rather than a dishonest or unethical practice.
    • B. Borrowing from a client who isn't in the business of lending, without adequate disclosure, is specifically listed as a dishonest or unethical practice under the Model Rule.
    • C. Failing to disclose a material conflict of interest that could impair unbiased advice is a core fiduciary breach and a listed unethical practice.
    • D. Charging a fee unreasonable relative to services rendered, without justification, is specifically identified as a dishonest or unethical business practice.

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