Question

Under the Rules of Conduct, which of the following statements is correct?

a. A certificant does not need to clearly identify the assets, if any, over which he or she will take custody.
b. Commingling of client funds is permitted when it is explicitly authorized and defined in a written agreement between the parties.
c. A certificant does not need to disclose their compensation arrangements to clients.
d. Form ADV is not an acceptable form of written disclosure for clients.

Answer 1

The correct statement under the Rules of Conduct is b. Commingling of client funds is permitted when authorized and defined in a written agreement.

Step-by-step explanation:

Under the Rules of Conduct, the correct statement is b. Commingling of client funds is permitted when it is explicitly authorized and defined in a written agreement between the parties.

Commingling refers to the mixing of client funds with the firm's own funds. While it is generally prohibited, it may be allowed in specific cases where there is explicit authorization and a clear definition in a written agreement. This is done to ensure transparency and protect the interests of clients.

In contrast, options a, c, and d are incorrect. A certificant must clearly identify the assets over which they will take custody, as this is a requirement for responsible custody practices. They must also disclose their compensation arrangements to clients to ensure transparency.

Form ADV, which is a mandatory disclosure document for investment advisers, is an acceptable form of written disclosure for clients.

Therefore the correct answer is b. Commingling of client funds is permitted when it is explicitly authorized and defined in a written agreement between the parties.