Reading 3.3 Standard 3: Duties to Clients Flashcards
In formulating an investment policy for a client, what should be taken into consideration?
Client identification
Investor objectives
Investor constraints
Performance measurement benchmark
List the Guidance of the Duties to Clients standard as it applies to Fair Dealing.
Fair dealing requires treating all clients fairly when disseminating investment recommendations or making material changes to prior investment recommendations.
“Fairly” implies taking care not to discriminate against any clients when disseminating investment recommendations or taking investment action.
May provide more personal, specialized, or in-depth service to clients who are willing to pay for premium services through higher management fees or higher levels of brokerage.
Describe the Duties to Clients standard as it applies to Loyalty, Prudence, and Care.
Members and candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment. Members and candidates must act for the benefit of their clients and place their clients’ interests before their employer’s or their own interests.
Describe the ways in which compliance can be achieved without applying GIPS.
Consider the knowledge and sophistication of the audience to whom a performance presentation is addressed.
Present the performance of the weighted composite of similar portfolios rather than using a single representative account.
Include terminated accounts as part of performance history with a clear indication of when the accounts were terminated.
Include disclosures that fully explain the performance results being reported.
Maintain the data and records used to calculate the performance being presented.
Describe the Duties to Clients standard as it applies to the Preservation of Confidentiality.
Members and candidates must keep information about current, former, and prospective clients confidential unless:
- The information concerns illegal activities on the part of the client;
- Disclosure is required by law; or
- The client or prospective client permits disclosure of the information.
List the Guidance of the Duties to Clients standard as it applies to Suitability.
Carefully consider the needs, circumstances, and objectives of the clients when determining the appropriateness and suitability of a given investment or course of investment action.
Review many aspects of the client’s knowledge, experience related to investing, and financial situation.
Gathering information and making a suitability analysis prior to making a recommendation or taking investment action falls on those members and candidates who provide investment advice in the course of an advisory relationship with a client.
List the procedures that should be included in any suitability test policies.
An analysis of the impact on the portfolio’s diversification.
A comparison of the investment risks with the client’s assessed risk tolerance.
The investment fit related to the required investment strategy.
List the topics that should be addressed when drafting statements or manuals containing policies and procedures regarding responsibilities to clients.
Follow all applicable rules and laws
Establish the investment objectives of the client
Consider all the information when taking actions
Diversify
Carry out regular reviews
Deal fairly with all clients with respect to investment actions
Disclose conflicts of interest
Disclose compensation arrangements
Vote proxies
Before making a disclosure that is outside the scope of the confidential relationship and does not involve illegal activities, what 2 questions should be answered?
In what context was the information disclosed? If disclosed in a discussion of work being performed for the client, is the information relevant to the work?
Is the information background material that, if disclosed, will enable the member or candidate to improve service to the client?
Describe the Guidance of the Duties to Clients standard as it applies to Loyalty, Prudence, and Care.
The phrase “loyalty, prudence, and care” clarifies that client interests are paramount.
Prudence requires caution and discretion. The exercise of prudence by investment professionals requires that they act with the care, skill, and diligence that a reasonable person acting in a like capacity and familiar with such matters would use.
The standard is not a substitute for legal or regulatory obligations.
Members and candidates must also be aware of whether they have “custody” or effective control of client assets.
Identify the points to consider when establishing fair-dealing compliance procedures.
Limit the number of people involved.
Shorten the time frame between decision and dissemination.
Publish guidelines for pre-dissemination behavior.
Simultaneous dissemination.
Maintain a list of clients and their holdings.
Develop and document trade allocation procedures.
List the Guidance of the Duties to Clients standard as it applies to Performance Presentation.
Provide credible performance information and avoid misstating performance or misleading investment performance.
Should not state or imply that clients will obtain or benefit from a rate of return that was generated in the past.
If promoting the success or accuracy of recommendations, must ensure that claims are fair, accurate, and complete.
Make available detailed information supporting that communication.
Describe the Duties to Clients standard as it applies to Performance Presentation.
When communicating investment performance information, members and candidates must make reasonable efforts to ensure that it is fair, accurate, and complete.
