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

Smith advises two clients with similar salaries. Robertson, 60, has a large asset base, low income needs and high risk tolerance. Lanai, 40, wants a steady, low-volatility return to fund his children's education. Smith recommends putting 20% of each portfolio into zero-yield, small-cap, high-technology equities. Smith has most likely violated Standard III(C) in respect of:

Smith most likely violated Standard III(C) only for Lanai. The aggressive investment may fit Robertson's large asset base and risk tolerance, but it conflicts with Lanai's need for steady, low-volatility returns, and Smith wrongly applied one client's strategy to a client with different circumstances.

  1. Aboth clients, because small-cap equities are never suitable
  2. BLanai only, because his circumstances and objectives differ from Robertson'sCorrect
  3. CRobertson only, because of his age

Explanation

The investment may suit Robertson given his financial circumstances and aggressive stance, but it is unsuitable for Lanai, who wants steady low-volatility returns. Applying Robertson's strategy to Lanai ignores differing circumstances and objectives. No investment is unsuitable for every client, so the first option is wrong.

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