Xuanchi Zuan is a successful portfolio manager with Up & Away, a money management fund that operates strongly bullish funds. One of Zuan’s clients, Margo Margolis, is about to retire in a couple of years. Margo has been phasing out her risky investments over the past five years, moving them into longterm treasury bonds.

Xuanchi Zuan is a successful portfolio manager with Up & Away, a money management fund that operates strongly bullish funds. One of Zuan’s clients, Margo Margolis, is about to retire in a couple of years. Margo has been phasing out her risky investments over the past five years, moving them into longterm treasury bonds.

However, she recently read in a financial magazine the attractiveness of investing in emerging markets. She was especially enticed by the 30% and 40% annual returns observed in these markets over the past 2- 3 years. She approaches Zuan and instructs him to move 30% of her funds into these markets. Zuan should:
A . none of these answers.
B . evaluate the emerging market investments and move the funds only if he considers them suitable for investment for Margo.
C . refuse to do so, pointing out the high risks involved in such investments.
D . move the funds into emerging market securities per Margo’s request.

View Answer

Answer: A

Explanation:

Zuan cannot refuse to do something that his client instructs him to do, as long as it is legal.

However, it is his duty to apprise his clients of the risks and returns associated with different instruments and advise them about the suitability of including such investments in their portfolios. Once the client is aware of all the pitfalls and rewards, the final decision must rest with the client. In Margo’s case, Zuan should do the same before acting on her instructions. This question relates most directly to Standard IV (B.1) – Fiduciary Duties.