CFA Practice Question
Ella Hill is an investment advisor. To her clients, she recommends XQP - an equity fund - that takes aggressive positions. In return XQP pays Hill a commission which she does not disclose to her clients. Over the years, XQP's average return has beaten market indices, albeit with significantly higher volatility. Hill's clients are young professionals accumulating money for retirement more than two decades away. Hill has violated the Standards relating to:
A. suitability of investments and disclosure of conflicts.
B. only disclosure of conflicts.
C. only suitability of investments.
Explanation: XQP is not unsuitable for the young professionals. Hill however should disclose the commissions.
User Contributed Comments 7
| User | Comment |
|---|---|
| cfaeater | Not sure if I totally agree with that an aggressive position for 'young professionals' should be a blanket option for that area of clientele. Just because someone is a young professional, that unique individual may not be comfortable in an aggressive portfolio. Any thoughts from other members? |
| dakota6789 | An individual should sell to the sleeping point. They may not be comfortable with such high vol. |
| scottm8571 | I have multiple young professional friends who can't handle more than index funds...however what the question says is true in general. |
| Mikehuynh | Better rely purely on info provided in the question to answer coz making assumptions will confuse our mind. |
| grew0001 | Sometimes I think these questions make me stupider... if we assume young="GO RISK!", then I'm sure we're on the wrong path |
| michaeloa3 | Portfolio planning explicitly talks about making inquiries into client's risk tolerance. Client could be young professional buy have very low risk tolerance, in which case the investment above wasn't suitable. Question makes no mention of the risk tolerance of the young professional. |
| harrybay | Could the fact that she recommends only and does not actually force her clients to invest in the fund be for something? |