JoeyDVivre

Jack Weatherford is a portfolio manager and is providing advice for Maria Conn, an accountant. From his brief conversation with Conn, Weatherford has learned that Conn is 43 years old and her goal is to save for retirement. Weatherford has been extremely busy lately but would like to get Conn started with an asset allocation as soon as possible. He tells her that he might temporarily put her assets in domestic equities and then reallocate her assets when he has time. Which of the following statements is most accurate? Weatherford should:

A) not allocate her assets until he has developed an investment policy statement for her.

B) invest Conn’s funds in the domestic equities immediately so Conn does not miss out on potential bull markets.

C) let Conn make investment decisions so that he avoids liability for potential investment losses.

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Weatherford should not allocate her assets until he has determined her risk and return objectives as well as investment constraints. An entire allocation to equities may be unsuitable for her if, for example, she has high liquidity needs. Because the portfolio manager is an expert in the field, he or she has presumably more knowledge than the client. The manager should not rely on the client to make the investment decision. The manager should also not rely solely on the client’s profile to make the investment decision. The manager is in a position of trust and should meet both standards of competence and conduct.

JoeyDVivre

Kelsey Opelt is a portfolio manager and is providing advice for Jay Steele, a retiree. Opelt has been working with Steele for many years. They have a good relationship and Opelt has taught Steele the basic of investments. Steele has fairly steady liquidity requirements. His house is paid for, he has good health insurance, and he has a steady pension. He only requires $1,000 a month in spending money that allows him to enjoy retirement. His children are grown and financially independent. His wife Harriet passed away five years ago. Because of Steele’s steady lifestyle, low liquidity requirements, and investment knowledge, Opelt has not adjusted Steele’s portfolio for capital market expectations in many years. The portfolio has performed quite well recently, due to an average return in the stock market of 25% over the past three years. Opelt should:

A) not perform any actions because Steele’s circumstances have not changed, and are not expected to change, for many years.

B) monitor the portfolio and capital market expectations more closely.

C) not interfere with the portfolio because it is performing so well.

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Opelt should monitor the portfolio and capital market expectations more closely. Although it appears that Steele’s circumstances have not changed, capital market conditions can change, which could call for a change in asset allocation. This may well be the case here because of the recent high stock market returns. Monitoring the portfolio and capital market expectations is an important part of portfolio management.