{"id":40963,"date":"2025-02-12T04:22:00","date_gmt":"2025-02-12T04:22:00","guid":{"rendered":"https:\/\/analystprep.com\/study-notes\/?p=40963"},"modified":"2025-02-13T07:14:56","modified_gmt":"2025-02-13T07:14:56","slug":"standard-iiic-suitability","status":"publish","type":"post","link":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/standard-iiic-suitability\/","title":{"rendered":"Standard III(C) \u2013 Suitability"},"content":{"rendered":"<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/pbf5wl011a4\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>Members and Candidates are in charge of managing a portfolio according to a specified mandate, strategy, or style; they must only make investment recommendations or conduct investment actions that are compatible with the portfolio&#8217;s stated objectives and limits. They should also make sure the investment is appropriate for the client&#8217;s financial circumstances and&nbsp;goals and mandates. Members and candidates should&nbsp;inquire about their investment experience, risk, and return objectives to establish a client&#8217;s suitability for a particular investment.<\/p>\n<blockquote>\n<h4><strong>Application 1: IPS Update<\/strong><\/h4>\n<p>Joseph Layfield has a financial portfolio worth USD 100,000. His father passed away and left him with a USD 5 Million inheritance. Over two years, Umar Farheed, his investment adviser, has not made any changes to his IPS. Farheed manages Layfield&#8217;s portfolio with the same objectives and constraints listed in his initial IPS.<\/p>\n<p>Has Farheed violated Standard III(C) \u2013&nbsp;Suitability?<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li>No, he is managing Layfield&#8217;s portfolio in line with his IPS.<\/li>\n<li>Yes, he has failed to update Layfield&#8217;s portfolio to incorporate Layfield&#8217;s change in circumstance.<\/li>\n<li>No, Layfield&#8217;s inheritance does not materially change his objectives and needs.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is<strong> B.<\/strong><\/p>\n<p>Layfield receiving his inheritance would be considered a material change in his circumstances. Layfield can assume more risk and can broaden his investment holdings. Farheed has violated Standard III(C) \u2013 Suitability by failing to update Layfield&#8217;s IPS to reflect his significant change in circumstance.<\/p>\n<h4><strong>Application 2: Following an Investment Mandate<\/strong><\/h4>\n<p>Travis Green is a portfolio manager responsible for InvesTank&#8217;s high-growth fund. He purchases high-income (low growth) stocks of several utility firms. He believes that these stocks are significantly undervalued and would provide a positive return for the fund.<\/p>\n<p>Would Green&#8217;s purchase of high-income stocks violate Standard III(C) \u2013 Suitability?<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li>Yes, because he is not following the fund&#8217;s investment mandate.<\/li>\n<li>No, because he has the discretion of the fund&#8217;s stock selection.<\/li>\n<li>No, because the potential upside to the fund from his selection would benefit the fund&#8217;s beneficiaries.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is<strong> A.<\/strong><\/p>\n<p>Green has violated Standard III(C) \u2013 Suitability. The purchase of the high-income stocks does not fit the investment mandate (high-growth fund) that Green manages. Green&nbsp;<em>must<\/em>&nbsp;manage the fund according to the investment mandate of the fund.<\/p>\n<h4><strong>Application 3: Suitability of an Investment<\/strong><\/h4>\n<p>Jackson Howard, CFA, is a fund manager at BVG Inc. Jackson manages several pension funds. Recently, cryptocurrency has gained higher returns, as reported by a popular online crypto analyzer. Jackson recommends cryptocurrencies to several pension plans. Under the CFA Institute &nbsp;Code and Standards, Jackson\u2019s actions:<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li>violated the CFA Institute Code and Standards<\/li>\n<li>does not violate the CFA Institute Code and Standards as cryptocurrency would offer good returns.<\/li>\n<li>does not violate the CFA Institute Code and Standards because cryptocurrency is a new asset class.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is&nbsp;<strong>A.<\/strong><\/p>\n<p>For Jackson to recommend a security to its clients, it should ensure the investment is appropriate for the client&#8217;s financial circumstances and&nbsp;goals and mandates. Pensions are not allowed to take on a lot of risks, while cryptocurrency is considered very risky and would not fit into a pension fund\u2019s portfolio.<\/p>\n<\/blockquote>\n<p>LOS 3(a): Evaluate practices, policies, and conduct relative to the CFA Institute Code of Ethics and Standards of Professional Conduct.<\/p>\n<p>LOS 3(b): Explain how the practices, policies, or conduct does or does not violate the CFA Institute Code of Ethics and Standards of Professional Conduct. <\/p>\n","protected":false},"excerpt":{"rendered":"<p>Members and Candidates are in charge of managing a portfolio according to a specified mandate, strategy, or style; they must only make investment recommendations or conduct investment actions that are compatible with the portfolio&#8217;s stated objectives and limits. They should&#8230;<\/p>\n","protected":false},"author":17,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[571],"tags":[],"class_list":["post-40963","post","type-post","status-publish","format-standard","hentry","category-cfa-level-iii","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Standard III(C) \u2013 Suitability - CFA, FRM, and Actuarial Exams Study Notes<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/standard-iiic-suitability\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Standard III(C) \u2013 Suitability - CFA, FRM, and Actuarial Exams Study Notes\" \/>\n<meta property=\"og:description\" content=\"Members and Candidates are in charge of managing a portfolio according to a specified mandate, strategy, or style; they must only make investment recommendations or conduct investment actions that are compatible with the portfolio&#8217;s stated objectives and limits. 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