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) is permitted to manage Peters’ account without any knowledge of his risk preferences. C) must decline to enter into an advisory relationship with Peters.
That’s a hairy one. I don’t think you can do either A or B without some kind of knowledge of goals/risk tol/etc, so I’d go with C (even though it doesn’t seem right to have to turn away business because the client is a pain).
I’m going w/ C. def not B. A doesn’t seem right either… to just automatically manage to a bm or index.
The question is, why does Peters refuse to answer those questions? It doesn’t make sense to let someone manage my money without him knowing what I want… A. it would be silly to construct a portfolio that is passive… then why hire Carol? B. if for some reason Peters loses everything on his account, Carol would be blamed as he managed the portfolio without the full knowledge… C. this is the only possible answer, although a bit weird…
I don’t even think A is possible without knowing *something*. Passive what? Bonds? Equities? We can’t possibly know how to allocate a portfolio without something to go on.
This can only come from Schweser…
Thats a retarded question if I’ve ever seen one. In the end it’s not really an ethics-related question, but something covered more in depth in the individual portfolio section… from which you can reasonably assume that C is correct only by default, since A and B make even less sense (albeit only slightly less).
The answer, if I recall, (from QBank) is B. You have to make reasonable inquiries, but at the end of the day, the client directs the show. You can educate the client about why it is important, but there is no obligation to turn away the client, or manage the client contrary to what the client wants (which could be the case in A).
B is correct, guys.
We’ve all been Schwesed I’m afraid.