Question

Under the Investment Advisers Act, which of the following statements is TRUE?

A) Commissions may not be levied on transactions if the client is paying an advisory fee
B) An adviser who has investment discretion may not always have brokerage discretion
C) Since an IA is prohibited from exercising brokerage discretion, the client must choose a broker-dealer through whom the trades will be executed
D) If an IA is given brokerage discretion by a client, the IA may not choose a full-service broker-dealer due to the higher fee schedule

Answer 1

The true statement pertaining to the Investment Advisers Act is that an adviser with investment discretion might not have brokerage discretion. While an adviser can make sell or buy decisions for the client's securities, they can't necessarily choose the broker-dealer unless they're authorized to do so.

Step-by-step explanation:

Under the Investment Advisers Act, the statement that is TRUE is: B) An adviser who has investment discretion may not always have brokerage discretion. This means that while an investment adviser may have the authority to make decisions about which securities to buy or sell on behalf of the client, they may not have the authority to select the broker-dealer that will execute those trades unless expressly given that power.

Clients are often the ones who choose the broker-dealer, based on factors like the cost of transactions, the broker's reputation, and the services offered.

It is not true that commissions cannot be levied on transactions if the client is paying an advisory fee, nor is it true that an investment adviser is always prohibited from exercising brokerage discretion. Moreover, an investment adviser with discretion may choose a full-service broker-dealer if it fits the client's needs and goals, even though such broker-dealers generally have a higher fee schedule.