Question #36 - Reading 42.3 Standards of Professional Conduct Guidance for Standards III

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: 15

Status: Correct

Correct Answer: A

Shared Context

- In light of Singh's comments during his telephone call to Patel prior to his uncle's death, which of the following actions that Patel can take comply with CFA Institute Standards of Professional Conduct? A) Patel must adhere to the existing portfolio strategy until she meets with Singh to develop a new portfolio strategy based upon updated financial information, but may place trades which are consistent with the existing strategy. B) Patel may change the current portfolio strategy and begin trading based upon Singh’s expectations because he advised her to do so. C) Patel must not place any trades in the account until she meets with Singh to develop a new portfolio strategy based on the updated information.

Question

According to CFA Institute Standards of Professional Conduct, may Patel reallocate Singh's portfolio toward technology stocks after his Uncle dies, but before the meeting with Singh?

Answer Choices:

A. No—Patel and Singh must meet and revise the IPS and portfolio strategy before reallocating

B. No—Patel must wait until the next annual meeting to reallocate

C. Yes—the total value of the municipal bonds received into the account will be too large relative to the other assets in the portfolio

Explanation

According to Standard III(C)—Suitability, investment recommendations and actions must be consistent with a client's written objectives and constraints (typically in the form of an IPS). Because Singh's written IPS would not allow the large allocation to technology stocks prior to receiving the inheritance, the IPS must be updated by Singh and Patel prior to taking any actions that deviate from the original IPS. Patel will violate Standard III(C) by reallocating the portfolio before meeting with Singh. (Module 42.5, LOS 42: III(C))

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