This case relates to the duty to protect the interests of the client. CFA Institute Standard of Professional Conduct III(A): Loyalty, Prudence, and Care states that CFA Institute members have a duty of loyalty to their clients and must act for the benefit of their clients using reasonable care and exercising prudent judgement. As a discretionary investment manager, Schieffer has the duty and authority to manage his client accounts in a manner consistent with their best interests. Best practice for an investment adviser is to discuss with the client at the outset of the relationship the investment objectives, goals, constraints, risk tolerance, long-term goals, income and retirement needs, and other financial considerations and draft an investment policy statement (IPS) to reflect these circumstances. Such a document should be updated regularly and with any changes to the clients’ circumstances.
Additionally, at the outset of the client relationship, the adviser should draft a client agreement that explicitly describes the nature of the services provided and the authority of the adviser to manage the accounts. A well-developed, comprehensive IPS and client agreement establishes parameters for the adviser’s actions in a variety of scenarios, including a rapidly deteriorating investment environment. Otherwise, even with discretionary authority, an adviser’s conduct may be constrained by the boundaries established by the IPS.
The market crash caused by the global pandemic is an extraordinary turn of events for Schieffer and his clients. Schieffer may be a tempted to want to protect his clients’ investment accounts in the short term by changing the asset allocation to cash (A). But this would presumably represent a major change to the asset allocation strategy previously agreed on. Some clients’ financial circumstances and needs may drastically change because of the pandemic and they may appreciate this short-term solution. Others may want to stay the course and stick to their long-term objectives and ride out the market crisis. Without either discussing such a drastic change in their portfolio directly or having previously established protocols for what to do in such a scenario, Schieffer must follow the established guidelines of the IPS and not make any changes to the general parameters of his clients’ mandates. Although it is understandable that Schieffer might want to try to get insight into the possible wishes of his clients, his duty to keep client information confidential would prevent him from discussing their accounts with anyone not authorized by the clients, even if they are close family members (C). Freezing client accounts until his customary policy of in-person communication is possible (D) would also not likely benefit his clients because there may be actions Schieffer could take as a discretionary investment manager without direct client communication that could protect their portfolio. Choice A is the best course of action.