Ethical and Professional Standards 【Reading 4】 system, include, following, fiduciary, effective

prashantsahni

All of the following would be effective components of a formal compliance system EXCEPT:

A) the investor's objectives and constraints should be maintained and reviewed periodically to reflect any changes in the client's circumstances.

B) as a fiduciary under ERISA, the firm will strictly follow pension plan instructions and restrictions, which may include concentrating portfolios in a few securities or industries.

C) the firm prohibits analysts and portfolio managers from using material nonpublic information in making investment recommendations or taking investment action.

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According to Standard III(A) – Loyalty, Prudence, and Care, “members shall use particular care in determining applicable fiduciary duty.” Under ERISA, a fiduciary has the duty to diversify the plan’s investments in order to protect it from the risk of substantial loss. The firm must follow pension plan instructions and restrictions unless they conflict with ERISA or other applicable laws and regulations. Having concentrated portfolios does not constitute effective diversification. An appropriate policy statement would be: “ The firm will follow pension plan documents only to the extent that they are consistent with applicable laws and regulations. The firm will diversify plan assets to minimize the risk of loss.”