STANDARD OF CARE OBLIGATION HAS THREE COMPONENTS: KNOW THEM FOR THE SERIES 65 EXAM

The Series 65 Exam covers the fiduciary obligations of I.A. reps when dealing with retail customers. Standard of care has three components and is not merely defined as putting a client's interests ahead of the rep's. 

The three components are diligence, care and skill. Diligence—It takes effort and work to come to an understanding of various investments and whether the investments make sense for retail customers in general. Care—It takes care in assessing whether the investments make sense for the particular clients who are being served by the rep. Skill—And finally, it takes skill in assessing whether the investments in question are applicable for the client in view of his or her other investments and investment experience and profile.

Here's how Bob Eder in his Study for the Series 65 Exam discusses standard of care:

Standard ofCare— As a fiduciary, an investmentadviser must always select the choice that benefits her client. If there is anydoubt, the adviser should put herself in the position of the client, and shouldalways choose the alternative that benefits the client, not herself. This iscalled the minimum "standard of care," below which the adviser orI.A.  representative violates his/herfiduciary duties. Here is what the SEC says: "Underthe Care Obligation, you must exercise reasonable diligence, care, andskill when making a recommendation to a retail customer to: 1) understandpotential risks, rewards, and costs associated with recommendation, and have areasonable basis to believe that the recommendation could be in the best interestof at least some retail customers; 2) have areasonable basis to believe the recommendation is in the best interest of aparticular retail customer based on that retail customer’s investment profileand the potential risks, rewards, and costs associated with the recommendationand does not place the interest of the broker-dealer ahead of the interest ofthe retail customer; and 3) have a reasonable basis to believe that a series ofrecommended transactions, even if in the retail customer’s best interest whenviewed in isolation, is not excessive and is in the retail customer’s bestinterest when taken together in light of the retail customer’s investmentprofile." (https://www.sec.gov/info/smallbus/sec...)

Bob Eder in his Study for the Series 65 Exam covers Standard of Care in detail in Chapter 16 on Communication with Clients.The Series 65 Exam covers Standard of Care, and NASAA's recently revised Series 65 Test Specifications lists Compensation under Section IV (H) (2) (2.4), so expect questions on the Series 65 Exam.

Here is the link to NASAA's new Series 65 Test Specifications. 

Study for the Series 65 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's book on Amazon.

For questions about Bob Eder's Series 65 manual,  Study for the Series 65 Exam,  or questions in general about the Series 65 Exam, or about Standard of Care, feel free to email Bob Eder at bobeder@bobeder.net.
Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. See Bob Eder's Author Page on Amazon.com.