Code of Ethics

• Topic 01

  Code of Ethics

  39 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. An adviser knowingly recommends an investment product to a client that they understand is likely to underperform alternatives, because they have a personal financial interest in the product. Which CII Code principle is most directly breached?

   • A
     Principle 2 — act in the best interests of each client — because the adviser is placing personal gain above the client's interest
     Correct answer
   • B
     Principle 5 — comply with relevant laws and regulations — because this behaviour is likely also a breach of COBS suitability rules
   • C
     Principle 4 — treat people fairly — because the adviser is not treating the client with equal respect
   • D
     Principle 3 — maintain and develop competence — because the adviser lacks sufficient knowledge of alternative products
   Explanation

   Principle 2 of the CII Code requires advisers to place the client's interests above personal gain or the interests of the firm. An adviser who recommends a product they know is likely to underperform because they have a personal financial interest is precisely breaching this principle. While Principle 1 (integrity) is also relevant (the adviser is being dishonest), Principle 2 is the most directly applicable because the core wrong is prioritising personal interest over the client's interest. In practice, multiple principles may be breached simultaneously.

2. What is the fifth principle of the CII Code of Ethics?

   • A
     Comply with relevant laws and regulations
     Correct answer
   • B
     Act with the highest ethical standards and integrity
   • C
     Maintain confidentiality of all client information
   • D
     Treat people fairly regardless of personal characteristics
   Explanation

   The fifth principle of the CII Code of Ethics is 'Comply with relevant laws and regulations'. This means acting within both the letter and the spirit of the law, supporting a culture of compliance, and making protected disclosures (whistleblowing) about genuine concerns. It includes not just avoiding breaches but actively supporting the regulatory system. All five principles of the CII Code must be learned in order for the R01 examination.

3. How many principles does the CII Code of Ethics contain?

   • A
     Seven
   • B
     Ten
   • C
     Five
     Correct answer
   • D
     Six
   Explanation

   The CII Code of Ethics contains five core principles: (1) Act with the highest ethical standards and integrity; (2) Act in the best interests of each client; (3) Maintain and develop competence; (4) Treat people fairly regardless of personal characteristics; (5) Comply with relevant laws and regulations. All five apply to all CII members and students. This is a basic recall question that is frequently tested in R01.