An investment advisor, through her spouse, owns a significant interest (over 30%) in a publicly traded company. She recommends this company's stock to several of her clients without disclosing her indirect ownership interest. Which regulatory principle is she primarily violating?

Question: An investment advisor, through her spouse, owns a significant interest (over 30%) in a publicly traded company. She recommends this company's stock to several of her clients without disclosing her indirect ownership interest. Which regulatory principle is she primarily violating?

Answer options:

• The best execution principle.
• The Know Your Product (KYP) rule. ✅ The conflict of interest identification and disclosure requirement.
• The obligation to maintain client confidentiality.

Correct answer: The conflict of interest identification and disclosure requirement.

Explanation: NI 31-103 requires registrants to address all material conflicts of interest in the best interest of the client, which includes identifying and disclosing them. Owning a significant interest in a recommended security creates a material conflict that must be disclosed.