Responsibilities to Clients: Investment Preferences and Ethical Obligations

Hard Professional Standards Application Responsibilities To Clients

Consider the following scenario: Maria is a CFA charterholder working as a financial planner. She manages a diversified portfolio for her client, Mr. Black, who has a moderate risk tolerance. Over the course of their relationship, Mr. Black has frequently expressed his desire to invest in emerging markets, believing they offer higher returns despite increased volatility.

During a recent review of Mr. Black's portfolio, Maria notices that the performance of a current holding in a conservative bond fund has improved significantly and believes reallocating some of Mr. Black's assets to this fund could provide more stable returns, counterbalancing the volatility he desires from emerging markets. However, this reallocation would reduce his exposure to the emerging markets he prefers.

As Maria considers her options, she reflects on her ethical obligations towards her client regarding his investment preferences and the responsibility to act in his best interests. Which of the following actions would align best with her professional responsibilities?

Maintain the current portfolio as it is, given that Mr. Black's stated preference is for emerging markets.

Reallocate funds to the conservative bond fund without consulting Mr. Black, since she believes it is in his best interest.

Discuss the potential reallocation with Mr. Black, presenting the benefits and risks of both approaches before making a decision.

Hint

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