Reading 10: Prudence in Perspective LOS b-Q 1～5

答案和详解如下：

1、With regard to diversification, which of the following statements best summarizes a manager’s fiduciary responsibility under the Prudent Investor Rule (PIR)?

A)   The manager has a duty to diversify client assets unless it is in the client’s best interests not to diversify.

B)   The manager always has a duty to diversify in a way that no more than 5% of the client’s assets are in the securities of a single issuer.

C)   The manager always has a duty to diversify in a way that no more than 5% of the client’s assets are in the securities of a single issuer, with the exception of sovereign debt such as U.S. government securities.

D)   Under the PIR the manager does not have a duty to diversify assets if expected returns are high enough to offset the concentration risk.

The correct answer was A)

The PIR requires the manager to diversify unless it is in the client’s interest not to diversify. For example, the client may have a small business exposure that he seeks to offset by going short in a set of securities that are concentrated in a specific industry. This would be permissible if the lack of diversification were deemed to be in the best interest of the client.

2、A trustee must adhere to the following general fiduciary standards EXCEPT:

A)   care.

B)   skill.

C)   caution.

D)   partiality.

The correct answer was D)    

Trustees must adhere to the standard of impartiality, not partiality.

3、Miles Turner, a CFA candidate, oversees a union pension fund. He got this job because of family connections as he is just learning the investment management business. Subsequently, he realizes that he is not ready to make the necessary decisions about the fund. He hires several portfolio managers. Under the Prudent Investor Rule, Turner is:

A)   not in compliance. Delegation of authority is not allowed.

B)   in compliance. Delegation of authority is allowed.

C)   in compliance if he hires outside managers only after posting sub-par results in-house.

D)   not in compliance because he did not put in writing that funds were managed in-house prior to the hiring of outside managers.

The correct answer was B)

Delegation of authority is allowed under the Prudent Investor Rule. There is no stipulation that Turner must try to do the job himself first.

4、Erica Barnes, CFA, is a trustee for a pension fund. Which of the following is an example of Barnes' failure to follow general fiduciary standards set forth in the new Prudent Investor Rule? She recommends the fund should:

A)   consider the need for future growth while maintaining current income obligations.

B)   hire an outside manager when they lack the in-house expertise to manage a small cap portfolio.

C)   study the risk/return profile of each new investment opportunity as it relates to the securities already in the portfolio.

D)   hire her relative to manage a new high yield portfolio.

The correct answer was D)

Trustees must exercise care, skill, caution, loyalty, and impartiality. Recommending that the trustees approve her relative as new portfolio manager endangers Barnes' ability to avoid conflicts of interest and hence her duty of loyalty.

5、At the time a client relationship is established, assume that an appropriate investment policy statement has been developed. Which of the following statements is CORRECT regarding the Prudent Investor Rule (PIR)? The PIR requires that the fiduciary:

A)   review the client circumstances and make changes when asked to do so by the client and make changes in the investment policy as warranted.

B)   anticipate changes in the client circumstances and make changes in the investment policy as warranted.

C)   develop an appropriate investment policy statement when the client relationship is established and update the investment policy only as is deemed necessary by the fiduciary.

D)   periodically review the client circumstances and make appropriate changes in the investment policy as warranted.

The correct answer was D)

The PIR requires that an investment policy statement be developed when the relationship is established, and that such a statement be updated no less frequently than annually (more frequently if there is a major change in client circumstances).