A bond portfolio manager approved only one below-investment-grade bond for a client with an investment-grade mandate, then added several more below-investment-grade bonds without client approval. This action most likely violated which CFA Institute Standard of Professional Conduct?

• A. Suitability
• B. Loyalty, Prudence and Care
• C. Independence and Objectivity
• D. Communication with Clients

Answer: (A)

This item tests adherence to client constraints and ensuring actions are suitable for those constraints. When a client mandates investment-grade securities, the portfolio must stay within that limit unless the client explicitly approves a change. Approving one below-investment-grade bond already breaches that constraint, and adding several more below-investment-grade bonds without the client’s consent represents a material shift in risk without authorization. Suitability requires that every investment or change be appropriate given the client’s objectives, constraints, and risk tolerance. Because the manager altered the risk profile outside the agreed mandate and without approval, this action violates the suitability standard.

Independence and Objectivity and Communication with Clients aren’t the primary issues here, as they pertain more to conflicts in research or to disclosure and consent processes, respectively. Loyalty, Prudence and Care is a broader fiduciary obligation, but the specific lapse shown is failing to adhere to the client’s stated constraints, which is a suitability failure.