III(C): Suitability

Patrick David, CFA, is a funds manager for Janice Investments. One of the funds he manages is called the Conservative Retirement 10 Fund and is designed for retirement investments of those within 10 years of retirement. Another fund, called the Sky’s the Limit Fund, invests in penny stocks of very small technology companies working on innovative new products. The Sky fund is currently overburdened by a company called Snowball Technologies, so, to improve its balance, Patrick transfers Snowball stock to the retirement fund. The Snowball investment in the retirement fund is not a significant amount in relation to the entire fund. _Most likely_, Patrick has:

Incorrect. Immaterial investments are subject to the same standards as material investments.

Incorrect. There is no such requirement in CFA Institute Standards.

Correct. Standard III(C): Suitability requires members responsible for managing a portfolio to a specific mandate to take only investment actions consistent with the stated objectives of the portfolio. Clearly, a very high-risk investment is not appropriate for retirement funds within 10 years of retirement.

not violated CFA Institute Standards because the Snowball investment in the retirement fund is immaterial.

violated CFA Institute Standards because transfers between funds must be disclosed in advance to all the affected clients.

violated CFA Institute Standards because Snowball, a highly volatile investment, is not an appropriate investment for the retirement fund.