Explanation:
A. Incorrect because Perez has violated Standard III (C), Suitability, as described in the Response Rationale for the correct answer. B. Correct because Perez has violated Standard III (C), Suitability, since the committee-selected bond fund may not be suitable for all of her clients. Standard III (C) states that when members and candidates are in an advisory relationship with a client, they must: • Make a reasonable inquiry into a client's or prospective client's investment experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this information regularly. • Determine that an investment is suitable to the client's financial situation and consistent with the client's written objectives, mandates, and constraints before making an investment recommendation or taking investment action. • Judge the suitability of investments in the context of the client's total portfolio.
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Maria Perez, CFA, is a portfolio manager for an advisory firm that utilizes external mutual funds. The firm has a committee that selects external funds, using an analytical model to determine their choices. Although Perez has no reason to question the committee's research process, she does not like the committee's choice for a bond fund because it is not appropriate for all her clients. She researches and selects a different bond fund that better meets her clients' needs, but her manager tells her that she is not permitted to make independent fund purchase decisions. She then invests in the fund chosen by the committee for all of her clients. Has Perez most likely violated the Standards?
A
No
B
Yes, the Standard relating to suitability
C
Yes, the Standard relating to diligence and reasonable basis
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