CFA Practice Question

CFA Practice Question

Alex Goldwyn is a portfolio manager for several pension plans. One of his plan sponsors wants Alex to invest plan assets in a company's stock to boost its price before the upcoming annual meeting for stockholders. Since Alex routinely invests in that industry and already holds some of the company's stock in the plan, he goes ahead and increases plan holdings of the sponsor's stock by fifty percent.
A. Alex is within his rights to manage the plan as he sees fit.
B. Alex has a fiduciary duty to that company.
C. Alex has violated Standard III (A) - Loyalty, Prudence, and Care and Standard V - Investment Analysis, Recommendations, and Action.
Explanation: Even though the sponsor of the plan is the corporation for whom the employees work, Alex's fiduciary duty is toward the plan's beneficiaries, not the sponsor. Second, the plan is already invested in the sponsor's stock and additional investment may reduce its diversification profile. Given the objectives of the plan, the risk of the portfolio may have increased as a result of adding more of the sponsor's stock. Alex is in violation of these standards.

User Contributed Comments 1

User Comment
ontrack Any action not benefiting the beneficiary or not in line with beneficiary's requirements should be avoided,irrespective of who recommends.
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