A Registered Investment Adviser charges a fee to customers based on a percentage of assets under management. The adviser invests customer funds solely in mutual funds that have a sales charge. Which statement is TRUE

Complete Question:

A Registered Investment Adviser charges a fee to customers based on a percentage of assets under management. The adviser invests customer funds solely in mutual funds that have a sales charge. Which statement is TRUE?

A. The only disclosure that the adviser must make to the customer is the asset management fee

B. The only disclosure that the adviser must make to the customer is the sales charge

C. The adviser must disclose to the customer both the management fee and sales charge to the customer

D. The adviser is not required to disclose to the customer neither the management fee nor the sales charge

C. The adviser must disclose to the customer both the management fee and sales charge to the customer.

Explanation:

A Registered Investment Adviser (RIA) can be defined as an individual or firm saddled with the responsibility of managing and giving advice about securities or assets. It is required by law that all Registered Investment Adviser (RIA) are registered with the Securities and Exchange Commission (SEC) or a state regulatory agency.

Generally, the RIA plays a fiduciary role for investors and as such are required to unconditionally act in the client’s best interests irrespective of the circumstances. Also, the registered investment adviser is expected to disclose any potential conflicts of interest and act responsibly in all of their transactions with the investors.

Hence, it is necessary and important that the registered investment adviser must disclose to the customer both the management fee and sales charge to the customer as a form of transparency.

Additionally, it is required to disclose the fees paid by the registered investment adviser to the certified public accountant (CPA).

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