What does the duty of care entail for an Investment Advisor (IA)?

• A. Only making high-risk investments
• B. Ensuring reasonable protection of a client's assets
• C. Signing contracts with clients
• D. Managing the internal operations of a firm

Answer: (B)

The duty of care for an Investment Advisor (IA) is primarily focused on ensuring reasonable protection of a client's assets. This obligation means that the advisor must act in the best interests of the client, exercising a level of care and diligence that a reasonable advisor in similar circumstances would exercise. By taking this approach, the advisor helps safeguard the client's investments, ensuring that they are managed prudently and with appropriate risk considerations. This aspect of the duty of care is fundamental to building trust and maintaining a professional relationship with clients.

In contrast, making only high-risk investments does not align with the duty of care since it may jeopardize the client's financial well-being without considering their investment goals and risk tolerance. Signing contracts with clients, while an important part of establishing the advisor-client relationship, does not encompass the ongoing responsibilities required under the duty of care. Similarly, managing the internal operations of a firm falls outside the advisor's individual responsibilities toward clients and does not reflect the core principles of client asset protection and prudent investment management.