NOTE THIS QUESTION IS TAKEN FROM QBANK WITH MODIFICATIONS. I INCLUDED WHAT I THOUGHT WERE THE RELEVANT KEY POINTS:
Maggie McCarthy is an individual investment advisor who uses mutual funds for her clients. She typically chooses from a list of 40 funds that she has thoroughly researched, and 1 fund really stands out. She puts the fund in a married couple's portfolio, and in all new clients portfolios, but not in any of her other clients' portfolios. Her reasoning is that her existing clients were comfortable with their current holdings, and she did not want to risk disturbing their comfort. Has McCarthy violated any Standards? McCarthy has:
A) violated the Standards by not dealing fairly with clients.
B) violated the Standards by not having a reasonable and adequate basis for making the recommendation.
C) not violated the Standards.
The answer is A and I understand that. But it could it also be letter B as well? She had no significant basis for choosing the fund except for the fact that it was the best performing fund in the portfolio. Shouldn't she have investigated the risk profile and return requirements of every portfolio first before putting it in every portfolio?作者: shootingstar 时间: 2011-7-13 15:27
She has "reasonable and adequate basis" for making the recommendation because she thoroughly researched all of the funds and selected the best based upon her research criteria.
"Shouldn't she have investigated the risk profile and return requirements of every portfolio first before putting it in every portfolio"
-You're thinking about suitability, which isn't mentioned. She would, of coarse, need to judge whether the investment is suitable for any portfolios before purchasing the security. This may, or may not have been done.
But if the holding IS suitable for her existing clients, it should be recommended to them. Not wanting to disturb their comfort isn't a good reason to neglect their portfolios (hence the fair dealing violation).
Edited 1 time(s). Last edit at Saturday, September 5, 2009 at 12:38PM by McLeod81.作者: kasinkei 时间: 2011-7-13 15:27
Watch out for key words. In this case, "thoroughly researched" implies reasonable and adequate basis. As McLeod81 stated, you are correct that she should have made sure that this fund was suitable for the clients portfolio to which she placed it, but that wasn't one of the available answers.
