Following two recent annual reviews it was determined that a client's commission-based account is appropriately...

The correct answer is A . Recommending unnecessary transactions in a commission-based account creates a serious conflict because each additional trade can generate compensation for the advisor without advancing the client's investment objectives. CIRO enforcement decisions characterize excessive trading or “churning” as trading that is excessive relative to the nature of the account and client's objectives, particularly where transactions generate commissions for the representative rather than economic benefit for the client. CIRO has stated that such conduct is inconsistent with the high ethical standards expected of a Registered Representative.

The CIRE syllabus specifically requires candidates to understand trust, agency and fiduciary duty and when those concepts apply . Where the circumstances establish a fiduciary relationship—particularly through client reliance, trust or advisor control—the advisor must put the client's interests ahead of personal compensation interests.

B is incorrect because disclosure of costs does not make economically unnecessary transactions appropriate. C is incorrect because the account's prior appropriate balance strengthens, rather than eliminates, concern about unnecessary trading. D is incorrect because best execution concerns how an order is executed , including price, cost, speed and certainty—not whether the recommendation to trade should have been made.

Study Guide Reference: CIRE Elements 3.3 and 9 — trust, agency, fiduciary duty, conflicts of interest, ethics and standards of conduct.

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