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CFA Level I · CFA Level I Exam · Guidance for Standard III: Duties to Clients

A member manages a large-cap income fund. The fund's stated mandate is to invest in dividend-paying large-cap companies. The member invests heavily in speculative start-up companies. The member has most likely:

The member has failed to invest consistently with the fund's stated mandate. Managers of a specific mandate must take only actions consistent with its objectives and constraints, and heavy speculative start-up holdings contradict a large-cap income fund, whatever their expected return.

  1. Aacted appropriately if the start-ups have high expected returns
  2. Bfailed to invest consistently with the stated mandate of the fundCorrect
  3. Cviolated the standard by not assessing each fund shareholder's suitability

Explanation

Standard III(C) requires those managing to a mandate to take only actions consistent with the stated objectives and constraints. Heavy investment in speculative start-ups breaches a large-cap income mandate. Managers of pooled funds are not responsible for judging the fund's suitability for individual investors, so the third option is wrong.

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