Question #41
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: 17
Status: Correct
Correct Answer: B
Question
A company has a defined benefit plan that is currently under-funded. The plan sponsor has instructed the portfolio manager of the plan to invest more aggressively to bring the funding level up to an adequate amount. Which of the following statements best describes the course of action the portfolio manager should take? The portfolio manager should:
Answer Choices:
A. not invest more aggressively since this may expose the plan to too much risk and may not be in the best interest of the plan's beneficiaries
B. invest more aggressively because his fiduciary duties lie with the plan sponsor
C. not invest more aggressively because this is not the method used to increase the funding level of a plan
Explanation
Standard III(A), Loyalty, Prudence, and Care, applies in this situation. According to this
Standard, investment actions should be carried out for the sole benefit of the client and in
a manner the manager believes to be in the best interest of the client. Here, the client is
the plan beneficiaries, not the manager or the entity that hired the manager.