The manager of a discretionary account places client funds in a suitable investment because it provides...
The manager of a discretionary account places client funds in a suitable investment because it provides a higher commission than alternatives that are also suitable for the client. The selected investment subsequently appreciates in value. This investment manager did not:
- place the client’s interests first.
- face an ethical dilemma because the investment was profitable.
- have a conflict of interest because the investment was suitable for the client.
Homework Answers
The answer is “have a conflict of interest because the investment was suitable for the client”.
Explanation – In the case of discretionary accounts the manager makes investments on behalf of the client without needing the client’s approval or consent for each trade. The manager has to ensure that each trade meets the objectives and pre-set conditions of the clients.
In this case as the investment was suitable for client and so the manager was performing his fiduciary duty and so there was no conflict of interest.
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