Background

Tom and Sharon Brown are not happy with their current investment advisor. They are seeking investment management and financial advisory services from someone they can trust. You are a registered investment advisor in your home state of Kansas. You have been in business for seven years and work with a select group of 70 clients. You offer financial and investment planning advice for either a percentage of assets under management or hourly fees. During the initial meeting with the Browns, you gather the following financial information:

Personal Data & Background Information

Primary Contact: Tom Brown Age: 53 Occupation/Title: Operations Management / VP of Operations

Secondary Contact: Sharon Brown Age: 56 Occupation: Home Maker

Children: Tom does not have any children of his own. Sharon has three children in college from her previous marriage; Maggie, 18; Shelby, 20; Candy, 22.

Marital Status: Comfortably married for eight years.

Relevant Financial Information

The Browns estimated net worth is $3 million. The majority of their financial wealth is allocated among Individual Retirement Accounts, Toms 401(k) plan, and a taxable investment account.

Sharon was widowed in her first marriage and the majority of the savings in the taxable account is life insurance proceeds. The account is a joint account and Sharon hopes to use a portion of the savings to help her girls purchase their first home. They have a 529 plan for college expenses.

Tom has an above average risk tolerance and Sharon leans more toward conservative, low risk investments.

Financial Objectives

Seek and find a reputable, ethical investment advisor to aid in their wealth accumulation and financial development.

Both have had undesirable experiences in the past working with other financial planning professionals and seek to understand the regulatory and ethical requirements for financial planners.

Work with an advisor to help them agree on an investment strategy to preserve their savings for future retirement.

5. You presented an investment policy for Tom and Sharon's accounts. However, Tom insists that you continue his current method of investing. One year later, they realized a 22 percent loss in their accounts. You should:

a) Suggest that Tom and Sharon find a new investment advisor

b) Communicate that you are acting only in the direction given by them

c) Refund a portion of your fee to compensate for the loss

d) Split the total loss with Tom and Sharon

6. Tom requests you place a trade to buy 2,000 shares of XYZ stock in his account that he has been researching on his own. A month later, after researching the stock yourself, you decide that it would be a great investment for your personal finances. You purchase 5,000 shares and disclose the purchase to Tom. Is this ethical?

a) Yes. It is permissible to place an order in your personal financial account at the same time and/or after the purchase was placed for your client.

b) Yes. You are protected by the fifteen day waiting period requirement to purchase the same stock as your client.

c) No, because your purchase might make the stock price rise and your client will have a personal gain.

d) No, because you are not allowed to use advice on investment purchases from your clients for personal reasons.