CFA Practice Question

There are 361 practice questions for this study session.

CFA Practice Question

In terms of CFA Institute's Standards of Professional Conduct per Standard III (A) Loyalty, Prudence, and Care, what are the duties that a member would have when managing an individual client's assets?

The manager has the responsibility ______.

I. to ensure that the client's objectives and expectations are realistic
II. to ensure that the client's objectives and expectations suit the client's set of circumstances
III. to explain all the risks involved to the client and ensure that he has understood them
IV. to make sure that his own personal objectives do not conflict with that of the client
A. I, II and III
B. II, III and IV
C. I, II, III and IV
Explanation: When managing individuals' accounts, the manger has the responsibility to ensure that the client's objectives and expectations are realistic and suit the client's set of circumstances. The manager must explain all the risks involved to the client and ensure that he has understood them. The manager must also make sure that his own personal objectives do not conflict with those of the client.

User Contributed Comments 15

User Comment
kuan Must we make the client come to our idea of "realistic" expectations?
pjudin Quote from CFA Readings
/Particular care must be taken to ensure that the goals of the investment manager or the firm in placing business, selling products, or executing security transactions do not conflict with BEST interests and objectives of the client/End of quote
In other words you should be interested in the BEST performance of the client, not your own.
miso In my opion point III refers to standard IIIC Suitability
osunks I is not realistic. Why must i make sure my clients objectives are realistic?
volkovv Because you owe a duty of loyalty, prudence, and care to the client. If you know from the outset that his objectives are unrealistic how can you be prudent about his investement?
Not only you owe this duty to the client, but you also supposed forsee the 'unforseen' and make appropriate disclosures. Example: You advise the client on an international investment, it becomes your responsibility to disclose any and all potential risks to the client. Lets say that international investment tanked because people in that market were using insider information. You didn't know about that when you made your recommendation and because of that didn't inform the client of that risk. According to CFAI you would still be in violation of this standard.
bansal define realistic?
misterlim The word "realistic" is in my opinion as subjective matter and will differ from person to person. I do agree that members have a duty of care but to "ensure" goals are realistic? In practice, this would be difficult to maintain.
Joel1980 Very difficult to ensure anothers opinions.
toxoplasmosis Well...I feel we can only explain if the objective and expectations are realistic to the client. Do we need to "ensure"?What if the client insist?
jorgeman81 come on guys, don't be so picky. Realistic means realistic, you just need to use common sense to see what realistic is in every situation.
gill15 Jorge is right.
Flip the question around. How would you answer it.

It's ok and we are good to go even if the clients goals are unrealistic.

You guys are thinking too much
Shaan23 1 and 2 I see as suitability. III as communication with the client and IV as Conflicts of nature with priority of transactions where it states that a professional does not benefit PERSONALLY from the trades undertaken for a client. Where is Due Diligience here---does it encompass all ethical codes?
janis36 this question is unrealistic. as is the passing of the exam for me :(
hon132 Realistic is realistic; if client A wants double digit growth with no risk, you have to address that.
Dilaraj I don't get personal interest's alignment. Can someone explain why?
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