Question #16
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: 7
Status: Incorrect
Correct Answer: A
Your Answer: C
Question
Lance Tuipulotu, CFA, manages investments for 400 individuals and families and often finds his resources stretched. When his largest investors petition him to include a 5% to 7% allocation of non-investment-grade bonds in their portfolios, he decides he needs additional help to meet the request. He considers various subadvisers who specialize in that asset class. To have a reasonable basis for selecting a subadviser, criteria that Tuipulotu should use should least likely include:
Answer Choices:
A. their internal controls
B. consistently high historical returns
C. adherence to their stated strategies
Explanation
Guidance for Standard V(A) Diligence and Reasonable Basis states that when reviewing
external advisers, members and candidates should (at a minimum) evaluate the adviser's
code of ethics, its compliance procedures and internal controls, its investment processes
and adherence to its stated strategies, and the quality of its published information on
returns.
(Module 42.5, LOS 42: III(C))