Ethical Decision-Making in Client Investment Recommendations

As a financial advisor, you have a diverse clientele, including individual investors and institutional clients. Recently, you received a proposal from a hedge fund manager seeking a significant capital investment from your clients. The hedge fund has had mixed performance in the past, and there are concerns regarding its high fees and complex fee structure. In a meeting with the hedge fund manager, you learned that they are offering an attractive commission for any new investments you refer from your clients.

After considering the opportunity, you reflect on your duties to your clients under the CFA Institute's Code of Ethics and Standards of Professional Conduct. Discuss how you would approach this situation, considering your fiduciary duty to your clients. What steps would you take to ensure that your actions are aligned with the best interests of your clients? Address any potential conflicts of interest, how you would conduct due diligence on the hedge fund, and how you would communicate with your clients about this investment opportunity.