Ethical Duty of Suitability in Client Recommendations

Very Hard Cfa Institute Code And Standards Duties - Suitability

John is a Chartered Financial Analyst who recently started working at Wealth Management Advisors. He has been assigned a new client, Mrs. Anderson, who is a 63-year-old retiree with a moderate risk tolerance and a desire for income generation rather than capital appreciation. During their initial meeting, Mrs. Anderson expressed strong interest in dividend-paying stocks and showed a preference for investments in the utilities sector, citing her familiarity with it.

John believes that technology stocks will outperform utilities over the next few years and wants to allocate a significant portion of Mrs. Anderson's portfolio towards them to enhance potential returns. Before proceeding with investment recommendations, John recalls the CFA Institute's Standards of Practice regarding duties and suitability. Considering this, what should John do?

Recommend a diversified portfolio including technology stocks, emphasizing the potential for higher returns, without explicitly addressing Mrs. Anderson's preference.

Respect Mrs. Anderson's preferences and recommend a portfolio heavily weighted in dividend-paying utilities, as per her expressed desire.

Discuss both the technology stocks and utilities with Mrs. Anderson, ensuring she understands the risks and returns of both, and then help her make an informed decision.

Hint

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