Professionalism and Ethical Decision-Making in Portfolio Management

As an investment professional with over a decade of experience, you have recently been appointed as a portfolio manager for a large institutional client. Your predecessor left behind several legacy investment positions that are performing poorly. After thorough analysis, you believe that liquidating these positions would be in the best interest of the client, but doing so would trigger a significant tax liability for the client, which could lead to an immediate discontentment with your management. Additionally, your firm, which takes pride in its long-term client relationships, has a rule against unnecessarily liquidating positions.

During a client meeting, the client expresses their frustration with the underperformance of these legacy investments. You are aware that maintaining transparency about the potential tax implications might jeopardize your standing with the client, but neglecting to share this information may violate your ethical obligations to act in the client's best interests. Considering the CFA Institute’s Code of Ethics and Standards of Professional Conduct, you must decide how to communicate your assessment and make a recommendation.

Discuss the ethical considerations at play in addressing this situation. How should you balance the principle of professionalism with the duty to act in the best interests of the client while adhering to your firm’s policies and the broader ethical standards of the investment profession?