Describe a conflict-of-interest scenario and how it should be disclosed.

• A. Conflicts must be disclosed only in writing, with no client acknowledgment.
• B. When the advisor earns commissions on product sales or inducements; disclosures must be in writing with client acknowledgment and consideration of alternatives.
• C. Disclosures are optional if the client is experienced.
• D. Conflicts can be resolved by the advisor without disclosures.

Answer: (B)

Conflicts of interest arise when the advisor’s own financial incentives could influence the recommendations given to a client. If the advisor earns commissions on product sales or other inducements, that creates a real incentive to favor certain products over what might be best for the client. The strongest, responsible way to handle this is to disclose the conflict in writing, explain how it could affect the advice, and present alternatives the client can consider. The client should acknowledge receipt of the disclosure in writing, which helps ensure they understand the potential bias and the range of options available. This combination—clear written disclosure, client acknowledgment, and consideration of alternatives—provides transparency, protects the client’s interests, and aligns with ethical and regulatory expectations. Disclosures that are oral only, optional for experienced clients, or that don’t document acknowledgment do not provide the same level of protection and clarity.