Client duties across allocation, suitability and confidentiality

Learning goals

• Diagnose the conduct from the facts and relevant professional duties.
• Recommend a documented preventive and corrective response.

Draft · approximately 90 minutes, excluding further revision.

Decision case · fictional facts

A fictional pension manager allocates an oversubscribed suitable trade entirely to a favored new client, before other eligible accounts, without a disclosed fair policy. A retiree separately requests a highly leveraged illiquid product despite near-term living needs. A colleague wants to share identifiable pension records with a friend; no consent, legal requirement or suspected unlawful activity is stated.

Duties and competing interests

Identify the actual client and beneficiaries under the mandate and put their interests first with prudence and care. Fair dealing means a fair opportunity and consistent disclosed allocation process, not necessarily identical holdings or simultaneous personal contact. Different service levels can be permissible when disclosed and not disadvantaging other clients unfairly.

Suitability requires current objectives, constraints, risk capacity and the total portfolio; an unsolicited request does not erase the duty to assess and explain conflicts. Performance presentation should be accurate and complete enough to avoid misleading selection. Confidentiality generally continues for former clients, subject to applicable exceptions such as required disclosure, permitted client release or illegal activity provisions.

Decision, controls and remaining uncertainty

Apply a documented fair allocation method to eligible accounts and correct favoritism. Update the retiree’s investment profile, explain leverage/liquidity risks and follow the process for unsuitable unsolicited requests rather than executing blindly.

Decline sharing identifiable records with the friend. Minimize access and document any authorized disclosure and legal review; use fictional data for this course.

Allocate a partial fill and handle an unsuitable request

New fictional facts: three eligible advisory accounts entered orders of 600, 300 and 100 shares before a block trade. Only 500 shares are filled. All three may hold fractional allocation lots in this exercise; the disclosed policy is pro rata to valid order size with a common block execution price. The highest-fee account asks to receive all 500 shares.

Separately, a retiree insists on a materially unsuitable leveraged position after being told about the risks and refuses to update the investment policy. Specify the next process step without assuming that a signed risk acknowledgment automatically makes the trade suitable or releases every duty.

Model reasoning, sensitivity and self-check

Orders total 1,000. Pro-rata allocations are 300, 150 and 50 shares. Fee importance is not a reason to override the disclosed method. Preserve order timestamps, eligibility checks, execution price and allocation records; a real minimum-lot constraint would need a documented fair procedure rather than arbitrary favoritism.

For the retiree, pause and document the discussion of the material policy conflict; consider whether the advisory relationship can continue and follow applicable compliance procedures. Do not describe suitability as satisfied by disclosure alone. Preserve confidentiality while involving authorized compliance staff.

Self-check: separate fairness across eligible accounts from suitability for a particular client. An investment may be suitable for each account yet allocated unfairly; fair allocation does not cure an unsuitable recommendation. Identify the advisory mandate before applying a client-specific suitability duty to a pooled-fund manager.

Formula and assumptions

Identify facts → duties → affected parties → feasible action → evidence and follow-up

Errors to catch

• Treating disclosure, client consent or a supervisor’s instruction as permission for prohibited conduct.
• Inventing missing facts or treating a potential concern as a proven legal violation.

Write, compare, then self-assess

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Original knowledge check

Answer every question before checking. Review explanations after submitting; retry starts a new attempt.

Sources and coverage status

These original lessons are drafts. Public outlines are used to check scope; the official learning-outcome text and proprietary question banks are not reproduced here. Follow the source for exam-year requirements and updates.

• Reference · www.cfainstitute.org
• Reference · www.cfainstitute.org
• Reference · www.cfainstitute.org
• Reference · www.cfainstitute.org