IACCP MASTER QBANK EXAM
UPDATED QUESTIONS AND CORRECT
ANSWERS.
The SMC Capital, Inc. No-Action Letter (September 5, 1995) states that trade allocations may
occur:
A. Only on a rotational basis
B. On a pro rata basis but other allocation methods can be used without violating the Advisers
Act
C. Only on a pro rata basis
D. Based on the trader's good faith discretion - ANS B. On a pro rata basis but other allocation
methods can be used without violating the Advisers Act
Which of the following should NOT be a factor when evaluating best execution?
A. Price
B. Transaction costs
C. Availability of affiliated brokerage services
D. Service and execution capability - ANS C. Availability of affiliated brokerage services
Under the safe harbor provided by Section 28(e) of the Securities and Exchange Act of 1934, a
"mixed use" product/service, purchased with soft dollars, most likely refers to which of the
following:
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,A. A research newsletter used by analysts
B. A computer terminal used only to place client trades
C. Portfolio management software used to calculate client returns
D. A junket to Pebble Beach for golf - ANS C. Portfolio management software used to
calculate client returns
An adviser's valuation procedures should, practically speaking, be prepared with the LEAST
attention to:
A. Large cap stocks
B. Illiquid investments
C. Foreign issues
D. Micro cap stocks - ANS A. Large cap stocks
Agency cross transactions do NOT require:
A. Annual disclosure to advisory clients of the number of agency cross transactions
B. Annual disclosure of the total remuneration received by the adviser through agency cross
transactions
C. Consent from at least two advisory clients
D. Disclosures that written consent may be revoked at any time - ANS C. Consent from at
least two advisory clients
"Bailey disclosure" refers to the concept of advising clients of the effect of directing the adviser
to use a particular broker(s). Disclosure about the ramifications of brokerage direction should
include:
A. Potential conflicts of interest when a directed broker referred the client to the adviser
B. Limits on the ability of the adviser to negotiate commissions
C. Restrictions on placing directed trades with other client trades
D. All of the above - ANS D. All of the above
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,Which of the following statements is FALSE?
A. Trade errors must be resolved for the client's benefit.
B. Principal transactions require consent prior to settlement.
C. Commissions generated from ERISA plan transactions may never be used to generate soft
dollars.
D. An adviser's fiduciary duty includes allocating investment opportunities fairly and equitably. -
ANS C. Commissions generated from ERISA plan transactions may never be used to generate
soft dollars.
A client directs an adviser to execute securities transactions with ABC Broker. What are adviser's
obligation(s) in trading for this client?
A. To consider ABC Broker when conducting client's transactions
B. To execute all of client's transactions with ABC Broker
C. To execute some of client's transactions with ABC Broker regardless of best execution
D. To execute all of client's transactions with ABC Broker, consistent with the adviser's duty to
achieve best execution - ANS B. To execute all of client's transactions with ABC Broker
Some of adviser's clients have directed that certain brokers be used to trade for their accounts.
When executing similar transactions for non-directed and directed business, the adviser should:
A. Ensure its order of transactions is consistent with its disclosure
B. Promise to receive equal execution for non-directed and directed business
C. Always execute directed transactions first
D. Consider which client's accounts need improved performance - ANS A. ensure its order of
transactions is consistent with its disclosure
Which of the following statements is FALSE?
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, A. In a soft dollar arrangement, an adviser always receives research services produced by a third
party whom the broker-dealer pays.
B. Soft dollar arrangements that fail to comply with the Section 28(e) safe harbor are not
prohibited under the Investment Advisers Act of 1940.
C. Riskless principal transactions may be used to generate soft dollar commissions.
D. Soft dollars may not be used to correct trade errors in client accounts. - ANS A. In a soft
dollar arrangement, an adviser always receives research services produced by a third party
whom the broker-dealer pays.
After a trade has been completed, an adviser checking for trade errors should reconcile trade
confirmations with which of the following?
A. Trade recommendations memorialized in the minutes of a Brokerage Committee meeting.
B. A trade order ticket completed after the order was completed.
C. A client's investment policy guidelines.
D. A trade order ticket completed prior to the execution of the order - ANS D. A trade order
ticket completed prior to the execution of the order.
The duty of an investment adviser to seek best execution for client securities transactions is
derived from which of the following?
A. Investment Advisers Act of 1940 Interpretative Releases
B. Common Law Fiduciary Principles
C. Securities and Exchange Act of 1934
D. The Investment Company Act of 1940 - ANS B. Common Law Fiduciary Principles
Prior to entering an aggregated trade order, an adviser should do which of the following
pursuant to the SMC No-Action letter?
A. Prepare a written allocation statement.
B. Obtain the written consent of each client participating in the aggregated order prior to
entering each aggregated order.
4 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
UPDATED QUESTIONS AND CORRECT
ANSWERS.
The SMC Capital, Inc. No-Action Letter (September 5, 1995) states that trade allocations may
occur:
A. Only on a rotational basis
B. On a pro rata basis but other allocation methods can be used without violating the Advisers
Act
C. Only on a pro rata basis
D. Based on the trader's good faith discretion - ANS B. On a pro rata basis but other allocation
methods can be used without violating the Advisers Act
Which of the following should NOT be a factor when evaluating best execution?
A. Price
B. Transaction costs
C. Availability of affiliated brokerage services
D. Service and execution capability - ANS C. Availability of affiliated brokerage services
Under the safe harbor provided by Section 28(e) of the Securities and Exchange Act of 1934, a
"mixed use" product/service, purchased with soft dollars, most likely refers to which of the
following:
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,A. A research newsletter used by analysts
B. A computer terminal used only to place client trades
C. Portfolio management software used to calculate client returns
D. A junket to Pebble Beach for golf - ANS C. Portfolio management software used to
calculate client returns
An adviser's valuation procedures should, practically speaking, be prepared with the LEAST
attention to:
A. Large cap stocks
B. Illiquid investments
C. Foreign issues
D. Micro cap stocks - ANS A. Large cap stocks
Agency cross transactions do NOT require:
A. Annual disclosure to advisory clients of the number of agency cross transactions
B. Annual disclosure of the total remuneration received by the adviser through agency cross
transactions
C. Consent from at least two advisory clients
D. Disclosures that written consent may be revoked at any time - ANS C. Consent from at
least two advisory clients
"Bailey disclosure" refers to the concept of advising clients of the effect of directing the adviser
to use a particular broker(s). Disclosure about the ramifications of brokerage direction should
include:
A. Potential conflicts of interest when a directed broker referred the client to the adviser
B. Limits on the ability of the adviser to negotiate commissions
C. Restrictions on placing directed trades with other client trades
D. All of the above - ANS D. All of the above
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,Which of the following statements is FALSE?
A. Trade errors must be resolved for the client's benefit.
B. Principal transactions require consent prior to settlement.
C. Commissions generated from ERISA plan transactions may never be used to generate soft
dollars.
D. An adviser's fiduciary duty includes allocating investment opportunities fairly and equitably. -
ANS C. Commissions generated from ERISA plan transactions may never be used to generate
soft dollars.
A client directs an adviser to execute securities transactions with ABC Broker. What are adviser's
obligation(s) in trading for this client?
A. To consider ABC Broker when conducting client's transactions
B. To execute all of client's transactions with ABC Broker
C. To execute some of client's transactions with ABC Broker regardless of best execution
D. To execute all of client's transactions with ABC Broker, consistent with the adviser's duty to
achieve best execution - ANS B. To execute all of client's transactions with ABC Broker
Some of adviser's clients have directed that certain brokers be used to trade for their accounts.
When executing similar transactions for non-directed and directed business, the adviser should:
A. Ensure its order of transactions is consistent with its disclosure
B. Promise to receive equal execution for non-directed and directed business
C. Always execute directed transactions first
D. Consider which client's accounts need improved performance - ANS A. ensure its order of
transactions is consistent with its disclosure
Which of the following statements is FALSE?
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, A. In a soft dollar arrangement, an adviser always receives research services produced by a third
party whom the broker-dealer pays.
B. Soft dollar arrangements that fail to comply with the Section 28(e) safe harbor are not
prohibited under the Investment Advisers Act of 1940.
C. Riskless principal transactions may be used to generate soft dollar commissions.
D. Soft dollars may not be used to correct trade errors in client accounts. - ANS A. In a soft
dollar arrangement, an adviser always receives research services produced by a third party
whom the broker-dealer pays.
After a trade has been completed, an adviser checking for trade errors should reconcile trade
confirmations with which of the following?
A. Trade recommendations memorialized in the minutes of a Brokerage Committee meeting.
B. A trade order ticket completed after the order was completed.
C. A client's investment policy guidelines.
D. A trade order ticket completed prior to the execution of the order - ANS D. A trade order
ticket completed prior to the execution of the order.
The duty of an investment adviser to seek best execution for client securities transactions is
derived from which of the following?
A. Investment Advisers Act of 1940 Interpretative Releases
B. Common Law Fiduciary Principles
C. Securities and Exchange Act of 1934
D. The Investment Company Act of 1940 - ANS B. Common Law Fiduciary Principles
Prior to entering an aggregated trade order, an adviser should do which of the following
pursuant to the SMC No-Action letter?
A. Prepare a written allocation statement.
B. Obtain the written consent of each client participating in the aggregated order prior to
entering each aggregated order.
4 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
