Best Course of Action for Newly Acquired Pension Account | Exam Question Answer

Best Course of Action for Newly Acquired Pension Account

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Question

Young, a portfolio manager with Northside Bank, has just been given investment authority for a newly acquired pension account. Client objectives have not yet been established. On the day the account is received, $2 million in bonds, representing 4 percent of the portfolio, mature. Which of the following is Young's best course of action on that day?

Answers

A. Invest the proceeds in cash equivalents until a meeting can be arranged to establish fund objectives.

B. Contact the client's former investment advisor and take investment action based on previously used guidelines.

C. Invest the proceeds in accordance with the bank's current asset allocation strategy.

D. Make no decision until client objectives have been established.

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Explanations

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A. B. C. D.

This question relates to Standard IV (B.2), Portfolio Investment Recommendations and Actions. This standard requires that members make a reasonable inquiry into a client's financial situation, investment experience and investment objectives prior to making any investment recommendation. To rely on outdated investment guidelines, or firmwide strategies, or to hold the funds, would be inappropriate because it might violate a member's duty to safeguard client's interests.

The best course of action is to invest in cash equivalents until a meeting can be arranged to establish fund objectives, because it adequately protects the client's interest until investment objectives are established.

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