Fiduciary Duty

B is correct. Jennifer's duty of loyalty requires her to recommend Fund A, which has lower costs and is in the client's best interest. When two investments are otherwise equal, fiduciary duty requires choosing the lower-cost option, even if it means less compensation for the adviser.

A violates the duty of loyalty by prioritizing Jennifer's compensation over the client's best interest. C is insufficient because disclosure alone does NOT eliminate a fiduciary's duty to avoid conflicts or act in the client's best interest; Jennifer still must recommend the optimal choice. D fails the fiduciary standard because the investments are NOT equally suitable due to the cost difference. the adviser must make the best recommendation, not defer to the client when there's a clear better choice.

C is correct. Fiduciary duty consists of two fundamental components: duty of care (providing advice with competence, skill, and diligence) and duty of loyalty (putting the client's interests ahead of the adviser's own interests).

A incorrectly pairs duty of care with confidentiality, which while important, is not one of the two core fiduciary components. B incorrectly identifies duty of disclosure; while disclosure is important, it's a mechanism for addressing conflicts under the duty of loyalty, not a separate component. D incorrectly references suitability (a broker-dealer standard, not the fiduciary standard) and best execution (primarily applies to broker-dealers, not advisers).

C is correct. The duty of care requires advisers to provide advice with competence and diligence, which includes ongoing monitoring and making changes when better options serve the client's best interest. The 0.30% annual savings on a $2 million portfolio equals $6,000 per year. a material benefit to the client. The adviser's workload does not override fiduciary obligations.

A violates the duty of care because "suitable" is the broker-dealer standard, not the fiduciary "best interest" standard. The duty of care requires ongoing diligence and improvement, not maintaining the status quo. B is incorrect because the fiduciary standard requires the adviser to proactively act in the client's best interest without waiting for the client to request it. D is incorrect because charging extra to fulfill existing fiduciary obligations would itself be a breach of the duty of loyalty.

C is correct (the EXCEPT answer). Verbal disclosure alone is insufficient to satisfy fiduciary obligations. Conflicts of interest must be disclosed in writing (typically in Form ADV Part 2A), and material conflicts require informed client consent. Verbal disclosure does not provide adequate documentation or satisfy regulatory requirements.

A is acceptable: Written disclosure in Form ADV Part 2A with client consent is a proper method for managing conflicts. B is acceptable: Eliminating the conflict entirely is the gold standard for satisfying fiduciary duty. D is acceptable: Written disclosure combined with demonstrating the recommendation serves the client's best interest despite the conflict satisfies both the duty of loyalty (disclosure) and duty of care (best interest analysis).

B is correct. Statements 1, 3, and 4 are accurate requirements for managing this conflict of interest.

Statement 1 is TRUE: The adviser must disclose in writing (typically in Form ADV Part 2A) that the fund is proprietary and creates a conflict of interest before making the recommendation.

Statement 2 is FALSE: The proprietary fund does not need to be superior to ALL alternatives; it must serve the client's best interest and be appropriate for the client's situation. If it is competitive with other suitable options and appropriate for the client, it can be recommended with proper disclosure.

Statement 3 is TRUE: Under the duty of care, the adviser must demonstrate that despite the conflict (adviser's firm profits from the recommendation), the proprietary fund still serves the client's best interest based on the client's goals, risk tolerance, and circumstances.

Statement 4 is TRUE: Material conflicts of interest require informed client consent, which should be documented in writing to satisfy fiduciary obligations and regulatory requirements.