I read an answer that said if client does not want to answer questions about his risk tolerance, the manager can invest based on what he/she thinks the tolerance is. What do you guys think?
I had seen a similar question on ethics, it said the manager should invest based on all other information he was able to collect like return objectives and other constarints. To tie this here, seems since it is not a violation under ethics …the manager can invest using his best judgement and limited information.
where was this question? trying to remember if I came across it already…I think I did… anyway. I would go with that too…probably better to be a little conservative though…but that’d be difficult to judge…depending on what information they’d given…
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.
Seems he knows ability but not willingness.
I am thinking prudent man/prudent investor applies is the minimum threshold