Which statement about client funds and commingling is true?

Which statement about client funds and commingling is true?

• A. I
• B. II
• C. I and II
• D. Neither I nor II

Answer: (C)

Keeping client funds separate from the adviser’s own money is a fundamental fiduciary duty. When funds are received on behalf of a client, they must be held in a dedicated client account or trust, clearly segregated from the firm’s operating funds, and they should be tracked and reported with accurate records. Commingling—mixing client funds with personal or firm money or using client funds for the adviser’s own expenses—undermines trust and creates conflicts of interest, making it difficult to show proper stewardship and accountability. Because the statements in question describe the proper handling of client funds and the prohibition on commingling, both reflect the required standards. This is why choosing the option that encompasses both statements is correct. In practice, funds should be deposited or remitted to the appropriate custodian as directed, and fees or disbursements should be handled strictly according to the client’s authorization and the agreed arrangement, ensuring no use of client money for personal or firm purposes.

Keeping client funds separate from the adviser’s own money is a fundamental fiduciary duty. When funds are received on behalf of a client, they must be held in a dedicated client account or trust, clearly segregated from the firm’s operating funds, and they should be tracked and reported with accurate records. Commingling—mixing client funds with personal or firm money or using client funds for the adviser’s own expenses—undermines trust and creates conflicts of interest, making it difficult to show proper stewardship and accountability.

Because the statements in question describe the proper handling of client funds and the prohibition on commingling, both reflect the required standards. This is why choosing the option that encompasses both statements is correct. In practice, funds should be deposited or remitted to the appropriate custodian as directed, and fees or disbursements should be handled strictly according to the client’s authorization and the agreed arrangement, ensuring no use of client money for personal or firm purposes.