Chartered Financial Analyst Level 3 test

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CFA Level 3 - Portfolio Management - Topics in Private Wealth Management

Intermediate

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Gary is a CFA charterholder and works as a portfolio manager at a large investment firm. One of his long-time clients, Susan, recently inherited a significant sum of money and wants to invest it with Gary's firm. Susan proposes that instead of the standard management fee, she will pay Gary a performance-based fee equal to 20% of any profits generated on her account. Gary knows that his firm's policies prohibit accepting performance-based fees from individual clients. What should Gary do in this situation to best comply with the CFA Institute Code of Ethics and Standards of Professional Conduct?

Gary should propose an alternative fee structure to Susan that includes both a reduced management fee and a more modest performance-based component, thereby balancing her desire for performance incentives with the firm's policy restrictions. He should seek approval from his superiors for this customized arrangement.

Gary should tactfully decline Susan's proposal and explain that his firm's policies, which are in place to maintain the integrity and independence of the investment process, prohibit accepting performance-based fees from individual clients. He should offer to manage her assets according to the firm's standard fee structure and investment strategies.

Gary should accept Susan's proposal for a performance-based fee structure, as it aligns his interests with those of his client and provides a strong incentive for him to generate superior investment returns. He should disclose the arrangement to his firm and obtain written consent from compliance to make an exception to the policy.