Loyalty to Clients: Managing Conflicts of Interest in Investments

As an investment adviser managing a diversified portfolio for a large institutional client, you are confronted with a conflict of interest regarding a new investment opportunity in a high-growth sector. The opportunity may provide attractive returns for your client, but it also benefits a personal relationship with the founder of the company significantly.

Your firm has recently initiated a strategy to ensure that all client communications remain transparent, ethically sound, and aligned with the Asset Manager Code, specifically regarding Loyalty to Clients. What actions should you take to ensure compliance with the ethical obligations outlined in the Asset Manager Code while addressing the potential conflict of interest?

In your answer, discuss the importance of loyalty to clients, the role of transparency in managing conflicts, and the specific steps you would take to ensure your client’s interests remain the paramount focus of your investment decisions. Additionally, consider how you would communicate with the client about this situation.