Question #11
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: 5
Status: Correct
Correct Answer: A
Question
A member would most likely violate the Standard regarding duties to clients by:
Answer Choices:
A. recommending purchase of securities without a reasonable inquiry into the investment experience of the client
B. executing a client order for a security the member believes is greatly overvalued
C. adding a risky derivative security to the portfolio of a client with moderate risk tolerance
Explanation
Standard III(A) Loyalty, Prudence, and Care requires members acting as advisors to make a
reasonable inquiry into the client's investment experience, risk and return objectives, and
financial constraints before making investment recommendations. Investment decisions
must be made based on a total portfolio approach, rather than the quality of an individual
investment in isolation. Some members are not acting as investment advisors and may
only have a duty to provide best execution of client orders.
(Module 42.4, LOS 42: III(A))