Explanation

Petrov's actions violate the Standard relating to suitability because:

• CFA Institute Standard III(C) - Suitability requires that members must:

  1. Make investment recommendations that are suitable for the client's financial situation, investment objectives, and constraints
  2. Follow the client's investment mandate and constraints

• Violation analysis:

  • Canadian bank stock purchase: This action does NOT violate the suitability standard because:

    • The fund's mandate requires investment in the Canadian large-cap financial services sector
    • The mandate also requires the fund to be fully invested
    • Petrov is making the best available choice within his constrained investment universe
    • He is acting within the fund's stated mandate and constraints

  • Japanese bank stock purchase: This action DOES violate the suitability standard because:

    • The fund's mandate specifically restricts investments to the Canadian large-cap financial services sector
    • A Japanese bank stock falls outside the geographic and sector constraints of the fund's mandate
    • Even though the investment may be attractive from an investment perspective, it violates the client's stated investment policy

• Key principle: Investment managers must adhere to the client's investment policy statement and constraints, even when they believe better opportunities exist outside those constraints

Correct Answer: B - Yes, by buying the Japanese bank stock