Client Risk Preference and Portfolio Management

Easy Professional Standards Application Responsibilities To Clients

Maria, a CFA charterholder, recently started managing the portfolio of a new client, Mr. Adams, who is nearing retirement. Mr. Adams has expressed a preference for low-risk investments and has explicitly stated that he cannot afford to take a loss due to market volatility. After reviewing Mr. Adams' financial situation and goals, Maria believes that including a small percentage of high-yield equities could provide better long-term returns without significantly increasing risk.

While structuring Mr. Adams' portfolio, Maria considers the implications of her investment recommendation. She must ensure that her actions are in line with the CFA Institute's ethical guidelines, particularly about client responsibilities. Given this context, which action should Maria take?

Include the high-yield equities in Mr. Adams' portfolio to enhance returns, regardless of his stated risk preference.

Discuss the rationale of higher-yield equities with Mr. Adams, ensuring he understands the risk before making a decision.

Ignore Mr. Adams’ preferences and construct a portfolio solely based on her expertise.

Hint

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