OmarAdnan

Let me just provide one more example of what I think is a bogus question. Three questions later on the afternoon session, question 8:
Sanjay Gupta, CFA, is interviewed by the First Faithful Church to manage the church’s voluntary retirement plan’s equity portfolio based upon his superior return history. Each church staff member chooses whether to opt in or out of the retirement plan according to his or her own investment objectives. The plan trustees tell Gupta that stocks of companies involved in the sale of alcohol, tobacco, gambling, or firearms are not acceptable investments given the objectives and constraints of the portfolio. Gupta tells the trustees he cannot reasonably execute his strategy with these restrictions and that all his other accounts hold shares of companies involved in these businesses because he believes they have the highest alpha. By agreeing to manage the account according to the Trustees’ wishes, does Gupta violate the CFA Institute Standards of Professional Conduct?
A. No
B. Yes, because the manager was hired based upon his previous investment strategy
C. Yes, because the restrictions provided by the Trustees are not in the best interest of the members
Answer = A
A is correct. According to Standard III (A) Loyalty, Prudence, and Care, Gupta’s duty of loyalty, prudence, and care is owed to the participants and beneficiaries (members) of the pension plan. As a church plan, the restrictions are appropriate given the objectives and constraints of the portfolio.
The loyalty, prudence, and care is owed to the beneficiaries, not the trustees. Gupta’s strategy is significantly affected by the restrictions, according to the question, and the policy beneficiaries may not even be notified of the restriction. I stand by answer C.