Question #9
Reading: Reading 42.3 Standards of Professional Conduct Guidance for Standards III
PDF File: Reading 42.3 Standards of Professional Conduct Guidance for Standards III.pdf
Page: 4
Status: Incorrect
Correct Answer: A
Your Answer: B
Question
Alan Cramer, CFA, practices in a country that does not regulate the investment of company retirement plans. He was retained by Bingham Companies to manage their corporate pension plan. Bingham's management has approached Cramer and requested that Cramer invest the entire plan in Bingham stock. Cramer may:
Answer Choices:
A. invest a portion of the retirement plan in Bingham Company stock if the investment is prudent and if he keeps the overall portfolio properly diversified
B. invest all of the retirement plan assets in Bingham Company stock according to management's request only if Cramer can document that the investment is more prudent than any other investment opportunity he finds
C. not invest any of Bingham Company's retirement plan in its own stock regardless of the stock's prospects and in spite of management's request
Explanation
Standard III(A), Loyalty, Prudence, and Care, requires members to comply with their
fiduciary duty. Retirement plan managers owe their duty to the plan participants, not to
the management of the company sponsoring the plan. The fiduciary duty includes the
obligation to diversify the plan's investments, regardless of the quality of the sponsoring
company's stock. Investing in the company's stock is not prohibited.
(Module 42.4, LOS 42: III(A))