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Ethical and Professional Standards Q52

0. Cory Crawford works as a fixed-income portfolio manager focusing on investment-grade bonds at Doonesbury Capital. His clients are primarily risk-averse, retired pensioners. Crawford‟s firm has introduced a bonus system to reward those portfolio managers who achieve a return higher than their respective benchmarks. Crawford, who is also a Level I candidate, purchases certain high-yield bonds in order to increase the return of his portfolio. No change in the objective or strategy has been suggested by Crawford. Crawford has least likely violated the Standard related to:

  • Option : C
  • Explanation : Crawford doesn’t own the same securities as his clients therefore he least likely violates Standard VI(B) Priority of Transactions. He violates Standard VI(A) Disclosure of Conflicts by failing to inform his clients of the change in his compensation arrangement with his employer which causes a conflict between his compensation and the clients’ IPS. He violated III(C) Suitability because high-yield bonds are not suitable for his risk-averse clients.
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