Ethical and Professional Standards

Correct Answer: Robert should provide Mrs. Anderson with a balanced and thorough explanation of the REIT's risks and potential returns, emphasizing that the high dividend yield should not be the sole reason for investing. He should also ensure that Mrs. Anderson understands the risks associated with the investment and that it aligns with her overall investment objectives and risk tolerance. Robert should document their discussions and Mrs. Anderson's understanding of the risks involved.

The best answer is to provide Mrs. Anderson with a balanced and thorough explanation of the REIT's risks and potential returns, emphasizing that the high dividend yield should not be the sole reason for investing. Robert should ensure that Mrs. Anderson understands the risks associated with the investment and that it aligns with her overall investment objectives and risk tolerance. He should also document their discussions and Mrs. Anderson's understanding of the risks involved. This approach aligns with the CFA Institute Code of Ethics and Standards of Professional Conduct, which requires CFA charterholders to act with integrity, competence, diligence, and respect, and to place the interests of clients above their own. Focusing primarily on the high dividend yield and potential for capital appreciation while minimizing the discussion of risks would not be in the client's best interest and would violate the CFA Institute's ethical standards. Similarly, providing information about the REIT but emphasizing that the decision to invest is ultimately the client's responsibility without thoroughly explaining the risks would not meet the standards of diligence and professionalism expected of a CFA charterholder.

Correct Answer: Inform the client about the fund's underperformance and the reasons behind it, while also disclosing the firm's revenue-sharing agreement with the fund company. Thomas should then work with the client to reassess their investment objectives and recommend alternative investments that better suit their needs.

The best answer is to inform the client about the fund's underperformance and the reasons behind it, while also disclosing the firm's revenue-sharing agreement with the fund company. Thomas should then work with the client to reassess their investment objectives and recommend alternative investments that better suit their needs. This answer aligns with the CFA Institute Standards of Professional Conduct, which require CFA charterholders to act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets. By being transparent about the fund's underperformance and the firm's revenue-sharing agreement, Thomas is prioritizing the client's interests and providing them with the information needed to make informed investment decisions. This demonstrates his commitment to acting with integrity and placing the client's interests above his own or his firm's. The other answers are incorrect because they involve either misleading the client or withholding important information that could impact their investment decisions. Continuing to recommend the underperforming fund or avoiding discussions about its performance altogether would be a clear violation of the CFA Institute Standards of Professional Conduct and could damage the trust between Thomas and his client.

Correct Answer: Emma should carefully consider the suitability of the small-cap technology stock for her clients' portfolios. She should evaluate the stock's potential risks and rewards in the context of each client's investment objectives, risk tolerance, and time horizon. If she determines that the stock is appropriate for some but not all clients, she should only include it in the portfolios of those clients for whom it is suitable. Emma should also clearly communicate the potential risks and volatility associated with the stock to any clients whose portfolios will include it.

The best answer is to carefully consider the suitability of the small-cap technology stock for each client's portfolio based on their individual investment objectives, risk tolerance, and time horizon. If the stock is appropriate for some clients but not others, Emma should only include it in the portfolios of those clients for whom it is suitable. She should also clearly communicate the potential risks and volatility associated with the stock to any clients whose portfolios will include it. It would be unethical for Emma to add the stock to the fund's portfolio without considering the individual needs and risk tolerances of her clients. As a CFA charterholder, Emma has a duty to act in the best interests of her clients and to ensure that her investment decisions are suitable for each client's unique circumstances. While it may be tempting to avoid the stock altogether due to its volatility, completely excluding it from the portfolio could also be a disservice to clients who are willing and able to tolerate the potential risks in pursuit of higher returns. The key is for Emma to carefully evaluate the stock's appropriateness for each client and to communicate openly and honestly about its characteristics and risks.