Reading 10: Prudence in Perspective-LOS b习题精选 standards, statements, 2010, face, fiduciary

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Session 2: Ethical and Professional Standards: Application
Reading 10: Prudence in Perspective

LOS b: Explain the general fiduciary standards to which a trustee must adhere.

 

 

 

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, with the exception of sovereign debt such as U.S. government securities.

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.

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

A) caution.

B) skill.

C) partiality.

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

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

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

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

土豆妮

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

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

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

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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.

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

B) in compliance. Delegation of authority is allowed.

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

土豆妮

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

B) in compliance. Delegation of authority is allowed.

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

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

土豆妮

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

A) caution.

B) skill.

C) partiality.

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 given client has specified that her primary concern is preservation of principal. Last year the value of this client’s account has declined by 8 percent. Which of the following statements is TRUE? This:

A) constitutes a violation of the manager's fiduciary responsibility only if the manager deviated from a properly constructed investment policy for this account.

B) does not constitute a violation of the manager's fiduciary responsibility, regardless of the nature of the investment policy statement for the account.

C) constitutes a violation of the manager's fiduciary responsibility regardless of whether the manager deviated from a properly constructed investment policy for this account.

土豆妮

 given client has specified that her primary concern is preservation of principal. Last year the value of this client’s account has declined by 8 percent. Which of the following statements is TRUE? This:

A) constitutes a violation of the manager's fiduciary responsibility only if the manager deviated from a properly constructed investment policy for this account.

B) does not constitute a violation of the manager's fiduciary responsibility, regardless of the nature of the investment policy statement for the account.

C) constitutes a violation of the manager's fiduciary responsibility regardless of whether the manager deviated from a properly constructed investment policy for this account.

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The key concept is that the portfolio investment decision must be process-oriented. The nature of the process is a function of the client’s specific situation and tolerance for risk, and this is embodied in an investment policy statement. So long as the investment policy statement is properly conceived and is adhered to by the manager, there is no violation of fiduciary responsibility.