LAW, ETHICS AND PROFESSIONAL STANDARDS Case Study - Investments essay sample

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Case Study


1. a) According to CFA Professional Standards of Conduct

3A, Mr. George is obliged to be loyal to Ms Laura and her daughter. He is also required to act reasonably and carefully when making judgements and work towards the benefits and interests of Ms Laura and her daughter before his interests. In section

3B, he is required to act with fairness and impartially with Ms Laura and her daughter when providing investment analysis, making investment recommendations and actions. Under subsection

3C, he is required to enquire their investment experiences, risk and returns objectives and financial restraints before recommending any investment to them. He is also required under this subsection to advice on investment suitable according to their financial status as guided by the written objectives, instructions and limits. Also, he is required to make suitable judgements on investments according to his clients’ portfolio. The last part of this section requires him to make investment recommendations according to the stated objectives and limits of the portfolio. Section

3E insists that he should make the details of Ms Laura and her daughter confidential. Under suitability requirements, Mr. George is required to make a concrete enquiry into Ms Laura’s investment experience, risks and returns objectives and her financial restraints before luring her into investing her life savings in his company (, 2015).

b) The main reason why Ms Laura’s daughter wants her mother to invest according to buy and hold and conservative investment strategy is because these strategies are less risky and any financial loss to her mother may affect her emotionally and consequently may affect her health. Nonetheless, there should be a clear distinction between emotional and financial investments. Even if Ms Laura passes away before the maturity date of the stocks, a beneficiary, her daughter would still benefit. Therefore, it is unwise to invest in the stock based on buy and hold and conservative strategy.

c) The CFA requirements state that an asset manager who is responsible for managing a client’s portfolio must adhere to specific strategies, mandates and styles. Managers are required to make investment recommendations that are in line with the written objectives and limits of the portfolio. The differences in Ms Laura’s and her daughter’s investment strategies restricted Mr. George from buying and selling the same categories of securities. Therefore, Mr. George went against the CFA Professional Standards of Conduct.

d) Under professionalism as mentioned in standards of professional conduct, Mr. George is required to have a full knowledge of the laws governing under the CFA Institute Code of Ethics and Standards of Professional Ethics. These rules bind members of CFA. In this case, Mr. George broke the CFA rules by investing in the purchase and sale of securities contrary to his clients’ portfolio. For example, Ms Laura account was guided by buy and hold and conservative strategy where the securities were not supposed to be traded without her permission. Under this section, Mr. George was also involved in gross professional misconduct. He acted with dishonesty and fraudulently as his company, Guaranteed …

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