Linda's Investment Advisory Dilemma

Medium Professional Standards Application Responsibilities To Clients

Linda is a CFA charterholder and a senior investment adviser at a well-regarded investment firm. She has a client, Mr. Thompson, who is nearing retirement. Mr. Thompson has expressed a desire to transition from a growth-oriented investment strategy to a more conservative approach that focuses on capital preservation and generating income. During a recent meeting, Linda discovers that Mr. Thompson's risk tolerance has significantly decreased due to recent market volatility.

While reviewing Mr. Thompson's portfolio, Linda realizes that a portion of his investments is still allocated to high-growth equities, which do not align with his current objectives. Although Linda believes some of these investments could provide upside potential in the long term, they are also at risk of significant short-term losses. Linda contemplates holding onto these equities in hopes that the market will rebound before recommending a shift to lower-risk investments.

Which action should Linda take to best fulfill her professional responsibilities to Mr. Thompson?

Recommend that Mr. Thompson maintain his current allocation to high-growth equities to benefit from potential market recovery.

Advise Mr. Thompson to gradually reduce his holdings in high-growth equities and reallocate to more conservative investments aligned with his current risk tolerance.

Encourage Mr. Thompson to invest in more high-risk assets, claiming that the long-term potential far outweighs the risks involved.

Hint

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% Correct92%