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

Which statement about prudence under Standard III(A) is most accurate?

Prudence requires following the client's investment parameters and balancing risk and return, acting with the care, skill and diligence a reasonable person in a like capacity would use. It does not guarantee against losses.

  1. AIt requires members to guarantee that client portfolios avoid losses
  2. BIt requires following the client's investment parameters and balancing risk and return, acting as a reasonable person in a like capacity wouldCorrect
  3. CIt requires members to apply a higher level of care to client assets than to their own

Explanation

Prudence means caution and discretion, following client parameters and balancing risk and return with the care, skill and diligence a reasonable person in a like capacity would use. It does not guarantee against loss. The standard asks for the same prudence as members apply to their own interests, not a higher level.

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