Chapter 8 Answers and Explanations

1. A – The professional may charge both to the same client at the same time. A firm or professional may theoretically charge both to a client, but this fact needs to be disclosed to them in writing. Professionals are not required to choose the compensation arrangement that results in the lowest overall cost, as long as the compensation arrangement chosen is in the client’s best interest.

2. B – What fees are charged to other similar clients. While it is not the only measure that should be used to determine if a fee is fair, a client that is being charged substantially more than other similar clients is likely being charged an unreasonable fee. Since most clients would always prefer a lower fee, their opinion of their fee is not a great measure of its reasonableness. Likewise, the portion of a fee the IAR or agent keeps after his or her firm takes their cut and the length of a relationship are not good measures of whether or not a fee is ultimately fair and reasonable.

3. A – IV only. Receiving compensation related to an account that wasn’t initially disclosed to a client requires a new disclosure of that fact in writing. Neither receiving broad based bonuses that do not create conflicts of interest nor sharing compensation with another licensed professional would require a separate written disclosure. Splitting compensation with an unlicensed professional is prohibited in general, regardless of a disclosure being made.

4. C – Only if the fees are reaso