Page 55 - FINAL CFA II SLIDES JUNE 2019 DAY 1

MODULE 5.1: READING 5: CHANGING INVESTMENT OBJECTIVES
CHANGING INVESTMENT OBJECTIVES

LOS 5.a: Evaluate the disclosure of investment objectives and basic policies and determine whether they
comply with the CFA Institute Standards of Professional Conduct.
In the case of pooled client funds such as mutual funds, it is particularly important that the portfolio manager’s
recommendations and investment actions be consistent with the stated objectives and constraints of the fund. The security
selection and portfolio construction processes are typically described in the fund’s prospectus. These processes are the key
elements upon which the determination of appropriateness and suitability may be determined. A material deviation from these
processes, in the absence of approval from clients, constitutes a violation of CFA Institute Standard III(C) Duties to Clients:
Suitability. The investment must fit within the mandate or within the realm of investments that are allowed according to the
fund’s disclosures.
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LOS 5.b: Describe appropriate actions needed to ensure adequate disclosure of the investment process.

To remain compliant with CFA Institute Standards, a portfolio manager must:

• Determine the client’s financial situation, investment objectives, and level of investing expertise.

• Adequately disclose the basic security selection and portfolio construction processes.

• Conduct regular internal checks for compliance with these processes.

• Stick to the stated investment strategy if managing to a specific mandate or strategy.

• Notify investors and potential investors of any potential change in the security selection and portfolio construction
processes and secure documentation of authorization for proposed changes.