Question #14
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: 6
Status: Correct
Correct Answer: A
Question
Janet Reilly has just approached Betty Miller, CFA, about purchasing 10,000 shares of Brookshire Co., a newly incorporated real estate development firm. Reilly is a retired schoolteacher living off the income from her late husband's life insurance policy. This investment will represent a significant shift in her investment portfolio. Miller believes this trade is unsuitable with respect to Reilly's investment policy statement. Consistent with the Standards, Miller should most appropriately:
Answer Choices:
A. discuss with Reilly whether she wishes to update her investment policy statement
B. follow her firm’s procedures for obtaining Reilly’s approval to carry out the unsolicited trade request
C. not accept the order, because it is not a suitable investment for Reilly
Explanation
According to the guidance for Standard III(C) Suitability, a member who receives an
unsolicited trade request that is not suitable for the client should discuss the trade with
the client before carrying it out. The nature of this discussion depends on whether the
trade has a material effect on the client's portfolio. Because this trade will have a material
effect, Miller's most appropriate action is to discuss with the client whether this trade
request reflects a change in her investment objectives and risk tolerance and thus
whether she wishes to update her IPS.
(Module 42.5, LOS 42: III(C))