What must advisers do upon discovering a client’s fraudulent activity?

When an adviser discovers a client's fraudulent activity, it is crucial for them to act in accordance with legal and ethical standards. Reporting the fraudulent activity to the appropriate authorities is essential because it helps to protect the integrity of the financial system and prevents potential harm to others. Advisers are obligated to both uphold the law and adhere to fiduciary duties, which include acting in their clients' best interests and ensuring compliance with regulatory requirements.

In addition to reporting the activity, considering termination of the advisory relationship is important. Engaging in fraudulent activities is a serious breach of trust and can expose the adviser and the firm to liability, as well as reputational damage. By terminating the relationship, the adviser can distance themselves from the unethical conduct and protect their business.

Taking these steps ultimately reflects the adviser's commitment to compliance and ethical standards, reinforcing the importance of integrity in the advisory profession.