Accredited Wealth Management Advisor Practice Exam

Which of these duties are applicable to broker-dealers under Regulation BI?

1. Broker-dealers are held to the duty of loyalty, and advisers to the duty of care.

2. Both broker-dealers and advisers are held to the duty of care and duty of loyalty.

3. Broker-dealers are held to the duty of care, and advisers to the duty of loyalty.

4. None of these are true.

The correct answer is: Broker-dealers are held to the duty of care, and advisers to the duty of loyalty.

Under Regulation Best Interest (Regulation BI), broker-dealers are indeed held to a duty of care, which requires them to act in the best interest of their clients and to exercise reasonable care when making recommendations. This includes providing clients with disclosures relating to potential conflicts of interest and ensuring that their recommendations are based on the client's financial situation, investment objectives, and needs. On the other hand, investment advisers are held to a fiduciary duty, which encompasses a higher standard that includes both the duty of care and the duty of loyalty. The duty of loyalty requires advisers to act solely in the interests of their clients, putting client interests above their own. The distinction made in the correct answer accurately reflects the regulatory framework: broker-dealers focus primarily on that duty of care within the context of their recommendations while advisers encompass both duties in serving their clients. Understanding this separation is crucial for clarity on the responsibilities of different financial professionals and the level of protection they are required to provide to their clients.