Molly Burnett, CFA, holds shares of a wind power company that merged into a utility with a poor environmental record. She continues to hold for dividends then sells. This most likely violates which CFA Institute Standard?

• A. Suitability
• B. Disclosure of Conflicts
• C. Independence and Objectivity
• D. None of the above

Answer: (A)

The situation hinges on whether an investment remains appropriate for clients given their objectives, risk tolerance, and constraints. When a wind-power company you own in your personal account merges into a utility with a poor environmental record, the investment’s risk and ESG profile can change significantly. Continuing to hold the stock for dividends implies you’re maintaining exposure that may no longer align with a typical client’s goals—especially for clients who prioritize environmental considerations or have stricter risk limits. In ethics terms, actions must be consistent with what you’d recommend to clients and with their stated needs. If keeping this security undermines that alignment, it violates the standard that investments and recommendations must be suitable for clients. While conflicts and independence concerns are also relevant in other contexts, the core issue here is whether the investment remains suitable for clients’ objectives after the merger.