Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

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According to CFA Institute Standards, how often is an investment advisor required to update a client's information?

  1. Only when a material change occurs to the portfolio.

  2. Only when there is a material change in the client's personal data.

  3. Regularly, to ensure current and accurate information.

  4. At least once every three years.

The correct answer is: Regularly, to ensure current and accurate information.

The requirement for investment advisors to update a client's information regularly is rooted in the need to maintain accurate and current records, which is essential for providing suitable investment advice tailored to each client’s individual circumstances. Regular updates ensure that the advisor is aware of any changes in the client's financial situation, investment objectives, or risk tolerance, which can significantly impact the investment strategy being pursued. This approach aligns with the fiduciary duty that investment advisors have to their clients, as it emphasizes constant engagement and the provision of personalized service. By keeping client information updated, advisors can make more informed decisions and better manage portfolios, while also assisting in compliance with regulatory obligations that stress the importance of due diligence and understanding client needs. The other options suggest more limited or infrequent circumstances for updating client information, which do not align with best practices in the investment advisory field. Regular updates help prevent misunderstandings and ensure that the investment advice remains relevant and effective over time.