Question

Imagine that you are a financial planner responsible for managing your client's assets. you make your income on commission, a percentage of the value of your clients’ portfolios; the more you increase his portfolio, the more money you make. one of your clients is a very conservative investor; right now you are not making much money from his account. you have an opportunity to sell him a high-return investment, but the risk is far greater than you think he would normally take. you think you can sell him on it if you leave out just a few details during your conversation. the investment will actually be good for him because he will get a significant return on his investment, and besides, you’re tired of spending your time on the phone with him and not making any money. this could be a win-win situation. should you give him your pitch with a few factual omissions or just make the investment and tell him after the money starts rolling in? after all, he doesn’t look at his account every day. what should you do?

Answer 1

Financial planners must prioritize their clients' needs and risk tolerance over personal gains. Full disclosure is essential when suggesting investments, especially if they carry more risk than the client typically prefers. The investments recommended should match the client's conservative nature and long-term financial goals.

Step-by-step explanation:

As a financial planner, it is both unethical and unprofessional to withhold information or push investments that exceed a client's risk tolerance, particularly for the sake of personal gain. Your duty is to act in the best interests of the client, maintaining a balance between the rate of return and risk they are comfortable with. Given the conservative nature of the client, a higher-risk option should only be presented with full disclosure and after a thorough explanation of the potential risks and benefits.

Investments like mutual funds might offer a suitable alternative, aligning with their need for secure, long-term growth without exposing them to excessive short-term volatility. The same principle applies to tangible assets. Despite the moderate rate of return, options such as real estate have their own set of risks and liquidity issues.