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

An investment adviser is preparing a recommendation for a new client. Under Standard III(C), which action is the adviser most likely required to take before making any investment recommendation?

The adviser must make a reasonable inquiry into the client's investment experience, risk and return objectives, and financial constraints before recommending anything. A suitability determination cannot prevent losses, and potential return alone never makes an investment suitable for a client.

  1. AMake a reasonable inquiry into the client's investment experience, risk and return objectives, and financial constraintsCorrect
  2. BGuarantee that the recommended investment will not lose value
  3. CRecommend the investment with the highest expected return

Explanation

Standard III(C) requires a reasonable inquiry into the client's investment experience, risk and return objectives, and financial constraints before a recommendation, and regular updating. An appropriate suitability determination does not prevent investments from losing value, so a guarantee is wrong. Not every investment is suitable regardless of its potential return, so highest expected return is not the test.

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