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

A portfolio manager discovers that her firm would earn a higher fee if she recommended its proprietary bond fund to a client, although a comparable external fund better matches the client's stated objectives and risk tolerance. Under Standard III(A), the manager should most appropriately:

She should recommend the external fund that best fits the client's objectives and risk tolerance. Standard III(A) requires members to place clients' interests before their employer's or their own, so the firm's higher fee must not motivate the recommendation.

  1. Arecommend the external fund that best fits the client's objectives and risk toleranceCorrect
  2. Brecommend the proprietary fund because her employer's interests come first
  3. Crecommend the proprietary fund and disclose the higher fee only if the client asks

Explanation

Standard III(A) requires members to place clients' interests before their employer's or their own interests. The recommendation must follow the client's objectives and risk tolerance, not the firm's fee income. The other options put firm interest first or hide the conflict.

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