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© 2019 CFA Institute. All rights reserved. You may copy and distribute this content, without modification and for non-commercial purposes, provided you attribute
the content to CFA Institute and retain this copyright notice. This case was written as a basis for discussion and is not prescriptive of how a business situation
or professional conduct matter should or should not be handled or addressed. Certain characters mentioned are fictional to facilitate discussion, and any
resemblance to actual persons is coincidental.
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This case involves CFA Institute Standard III(A): Loyalty, Prudence, and Care; Standard III(C): Suitability;
and Standard VI(A): Disclosure of Conflicts. Under Standards III(A) and VI(A), CFA Institute members have
a duty of loyalty to their clients, must act with reasonable care and exercise prudent judgement, must
place their clients’ interests before their own, and must disclose any conflicts of interest. The suitability
standard requires CFA Institute members to make a reasonable inquiry into a client’s investment
experience, risk and return objectives, and financial restraints to determine whether an investment is
suitable in the context of the client’s portfolio.
Although Reese did inquire about clients’ relevant financial circumstances and tolerance for risk
when making a recommendation about switching their assets to a SIPP, the facts indicate that the
predominant factor in the recommendation was the client’s preexisting desire to purchase alternative
assets. Thus, Reese’s work was not undertaken with reasonable care and prudent judgement because
his evaluations and recommendations were unduly swayed by the client’s wishes rather than the
financial circumstances, which means choice A would not be correct. Furthermore, knowing that
clients will need to sell current investments to invest in a particular alternative asset, such as overseas
property, Reese must consider the suitability of that investment when advising clients about whether
to move their assets to a SIPP, so choice D is also not correct.
It is clear that the Unregulated Introducer will only benefit financially if Reese recommends clients
transfer their pension funds into a SIPP. Accordingly, Reese, by virtue of his relationship with the
Unregulated Introducer, has a financial interest distinct from the client’s interest in the outcome of the
advice he gives. Therefore, a conflict of interest exists between the interests of Reese in the outcome
of the advice and the client’s interest in that outcome. Reese failed to ensure that his clients were
informed of Reese’s and Calloway’s relationship with the Unregulated Introducer, and that they were
informed of the financial benefit to Reese if the clients purchased alternative investments. This lack
of disclosure prevented clients from being able to make a fully informed decision about whether to
seek advice from Calloway about transferring their pension funds into a SIPP and to use their existing