Ethics Q

CFA Level III
#1

Carol Hull, CFA, is an investment advisor whose prospective client, Frank Peters, presents special requirements. To construct an investment policy statement for Peters, Hull inquires about Peters’ investment experience, risk and return objectives, and financial constraints. Peters states that he has a great deal of investment experience in the capital markets and does not wish to answer questions about his tolerance for risk or his other holdings. Under Standard III©, Suitability, Hull:

A) may accept Peters’ account but may only manage his portfolio to a benchmark or index. B) must decline to enter into an advisory relationship with Peters. C) is permitted to manage Peters’ account without any knowledge of his risk preferences.

#2

A) sounds good

#3

B

#4

Both are incorrect… Ans is C

Carol Hull, CFA, is an investment advisor whose prospective client, Frank Peters, presents special requirements. To construct an investment policy statement for Peters, Hull inquires about Peters’ investment experience, risk and return objectives, and financial constraints. Peters states that he has a great deal of investment experience in the capital markets and does not wish to answer questions about his tolerance for risk or his other holdings. Under Standard III©, Suitability, Hull:

A) may accept Peters’ account but may only manage his portfolio to a benchmark or index. B) must decline to enter into an advisory relationship with Peters. C) is permitted to manage Peters’ account without any knowledge of his risk preferences.

Your answer: B was incorrect. The correct answer was C) is permitted to manage Peters’ account without any knowledge of his risk preferences.

Hull would not violate Standard III©, Suitability, by managing Peters’ account without knowledge of his risk preferences. She made a reasonable inquiry into Peters’ investment experience, risk and return objectives, and financial constraints, as the Standard requires. If a client chooses not to provide some of this information, the member or candidate can only be responsible for assessing the suitability of investments based on the information the client does provide.

#5

B, if client does not provide any info, how will Carol decide on any invesment for that matter? may be the best way to go is passive indexing, if she is even allowed to go into advisory relationship?

Is there any related question in CFAI? I couldn’t find it

#6

it is a typical schweser question that mind F@$#$s people

#7

have fun in court, carol, when your client sues your ass for putting him in an unsuitable investment. you’ll have 0 documentation to protect yourself.

ps: screw schweser ethics questions

#8

I have in my notes from past ethics (my ethics notes rolls over from L1 and L2):

Suitability. You cannot perform suitability for a client unless they disclose all portfolios to you – even portfolios that you do not manage.

is that wrong? If not, I don’t know how to reconcile that w/ the above.