Joshua Miller, CFA, is a portfolio manager responsible for the accounts of private wealth clients. Kim Ortega, one of Miller’s clients, has a below-average risk appetite. Her investment account is currently solely allocated to fixed-income securities. After extensive research, Miller allocates emerging market equities to Ortega’s investment account. He believes that the low correlation between domestic bonds and emerging market stocks will significantly reduce portfolio risk. In addition, based on numerous emerging market specialists’ reports, the emerging market stocks have significant return potential.
With respect to the requirements and recommendations of the CFA Institute Standards of Professional Conduct, Miller’s decision to allocate emerging market stocks to Ortega’s investment account:
A
is not suitable.
B
is in compliance.
C
lacks a diligent and reasonable basis.
Emerging markets have high return potential but also have an inherent high risk associated with them, the investor has a low risk appetite so it is not suitable for his portfolio.