土豆妮

When we describe fiduciary duty as being process-oriented and dynamic this means that the fiduciary responsibility will be properly discharged if the manager:

A) develops an investment policy statement that is suitable for the client and reviews the client's situation on a regular basis.

B) implements a process that views asset risk in isolation and updates these risk estimates on a regular basis.

C) implements a process that yields returns that are above average on a risk-return basis and updates the process over time.

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Process-oriented means that there is a focus on the investment process, and that this is embodied in an investment policy statement that considers the client’s circumstances and risk-tolerance. Dynamic means that the investment process should change over time to take into account changes in the client’s circumstances. A review of the client’s circumstances is mandated to occur no less frequently than annually–more often if there is a major change in circumstances.

土豆妮

A 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%. Which of the following statements is CORRECT?

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

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

C) This 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.