Advice, consent and an undisclosed incentive
Series X-A case study · set 1, case 9 of 9 · 5 questions · 2 marks each
Question 1 of 5Case practice
0 right · 0 wrong · 5 to go
The case · stays here for all 5 questions
An advisory firm is reviewing five connected events involving client Leela. Her signed plan gives priority to money needed in one year and records low tolerance for loss on that amount. An employee proposes a concentrated small-company equity portfolio because a related distributor offers the employee an incentive. Leela has not been told about that relationship. A colleague suggests reusing another client’s risk questionnaire because Leela is travelling. The firm’s written process requires documented client-specific assessment, disclosure of material conflicts, recorded approval before implementation and a complaint log. Leela later complains that an instruction was carried out without her approval. No statutory deadline or numerical legal limit is assumed.
The stated procedures are the fictional firm’s policy. No current statutory deadline or fee limit is being tested.
Learn these topics
The written-out answers on this page are hidden while your timed set runs.
The case and its answers
Every question of this case, with its answer and why each other option is wrong.
An advisory firm is reviewing five connected events involving client Leela. Her signed plan gives priority to money needed in one year and records low tolerance for loss on that amount. An employee proposes a concentrated small-company equity portfolio because a related distributor offers the employee an incentive. Leela has not been told about that relationship. A colleague suggests reusing another client’s risk questionnaire because Leela is travelling. The firm’s written process requires documented client-specific assessment, disclosure of material conflicts, recorded approval before implementation and a complaint log. Leela later complains that an instruction was carried out without her approval. No statutory deadline or numerical legal limit is assumed.
The stated procedures are the fictional firm’s policy. No current statutory deadline or fee limit is being tested.
Q1Which fact most directly challenges the proposed equity portfolio’s suitability for this goal?
Option A. The money is needed in one year and Leela has low tolerance for loss on it. — Correct answer
Option B. Leela is travelling.
Why it is wrong: Travel affects communication, not the investment’s risk fit.
Option C. The employee knows a distributor.
Why it is wrong: That creates a conflict concern, but the goal facts directly establish the risk mismatch.
Option D. The firm keeps a complaint log.
Why it is wrong: A complaint process does not establish investment suitability.
Answer: A. The short horizon and low tolerance for loss make a concentrated equity exposure difficult to justify for the earmarked amount. Remember: Suitability must be assessed for the client’s actual objective and constraints.
Hint, shown before you answer in practice mode: Match the investment’s risk with the specific goal and loss tolerance.
XA-S1-C09-Q1mediumapplication
Q2What should happen to the employee’s incentive relationship before a recommendation is implemented?
Option A. Disclose the material conflict and assess the recommendation in Leela’s interest. — Correct answer
Option B. Hide it because the incentive is paid by someone else.
Why it is wrong: Who pays the incentive does not remove the conflict.
Option C. Increase the recommended investment to earn more incentive.
Why it is wrong: That would put the employee’s incentive ahead of the client.
Option D. Assume disclosure alone makes any product suitable.
Why it is wrong: A disclosed conflict does not cure an unsuitable recommendation.
Answer: A. The relationship should be made clear and managed. The recommendation must still meet Leela’s needs. Disclosure is not permission to disregard suitability. Remember: Conflict disclosure and suitable advice are separate obligations.
Hint, shown before you answer in practice mode: Consider both transparency and the substance of the advice.
XA-S1-C09-Q2mediumapplication
Q3How should the colleague’s suggestion about the questionnaire be handled?
Option A. Skip assessment because a recommendation is already ready.
Why it is wrong: That reverses the assessment and recommendation process.
Option B. Reject substitution and obtain Leela’s own information through an appropriate documented process. — Correct answer
Option C. Complete the form using the employee’s preferred risk level.
Why it is wrong: The assessment must reflect the client, not the adviser.
Option D. Copy the other client’s answers if both are similar ages.
Why it is wrong: Age alone does not establish the same finances or risk profile.
Answer: B. The firm’s stated process requires a client-specific assessment. Another person’s answers do not provide evidence of Leela’s circumstances. Remember: Documentation must represent the person receiving advice.
Hint, shown before you answer in practice mode: A risk profile belongs to one client.
XA-S1-C09-Q3mediumapplication
Q4What record is most relevant to investigating the disputed implementation?
Option A. A later favourable market return.
Why it is wrong: A profitable outcome does not establish prior consent.
Option B. The dated instruction and the evidence of Leela’s approval for that instruction. — Correct answer
Option C. A different client’s signed form.
Why it is wrong: It cannot establish Leela’s authorisation.
Option D. The employee’s incentive statement alone.
Why it is wrong: It may show a conflict but not Leela’s approval.
Answer: B. The review needs to establish what was authorised, when and by whom, using the instruction and approval trail. Remember: Good outcomes do not replace evidence of client consent.
Hint, shown before you answer in practice mode: Separate authorisation evidence from the investment outcome.
XA-S1-C09-Q4mediumapplication
Q5Which response follows the firm’s stated complaint process?
Option A. Delete the disputed instruction to avoid confusion.
Why it is wrong: Deleting evidence obstructs a fair investigation.
Option B. Log the complaint, preserve records, investigate and communicate a documented response. — Correct answer
Option C. Tell Leela that no complaint can be recorded without proof.
Why it is wrong: The process should capture the complaint and then investigate it.
Option D. Close the complaint if the portfolio made money.
Why it is wrong: The complaint concerns authorisation regardless of profit.
Answer: B. Recording the concern and preserving evidence enables a fair review. The response should address the actual allegation and findings. Remember: Complaint handling requires a traceable process and relevant evidence.
Hint, shown before you answer in practice mode: The complaint log begins a review rather than deciding the result in advance.
XA-S1-C09-Q5mediumapplication
All Series X-A cases
Every Series X-A case and case set.
All Series X-A casesPaper Trading Try it on the practice trading desk