Responsibilities to Clients - Disclosure of Conflicts

Very Hard Professional Standards Application Responsibilities To Clients

Maria, a CFA charterholder, is approached by a client, John, who is seeking investment advice regarding a private equity fund that Maria has been involved with as a limited partner. The investment is a significant part of John's portfolio, representing 25% of his assets. While John is eager to invest, Maria knows there are risks associated with the fund, including liquidity constraints and sector concentration. Additionally, the fund’s performance history is marginal compared to market benchmarks.

Understanding the potential conflict of interest due to her personal stake in the fund, Maria must decide how to proceed ethically while prioritizing her responsibilities to her client.

Which of the following actions taken by Maria best upholds her responsibilities to John as a client?

Maria recommends that John invest heavily in the fund while not disclosing her personal investment, believing it aligns with John's financial goals.

Maria discloses her involvement in the fund and the associated risks, advising John to consider a diversified investment strategy instead.

Maria avoids discussing the fund with John altogether to prevent any potential conflicts and suggests alternative investment options without disclosing her interests.

Hint

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