medium · CFA Level I ethics

Sarah Chen, a portfolio manager at Harbourlight REIT, manages a conservative income portfolio for Dr. Aris. Following a 15% market drawdown, Dr. Aris, who previously expressed a high capacity for risk due to his surgical income, demands that his entire portfolio be liquidated to cash immediately, despite this move being likely to prevent him from reaching his long-term retirement goals. Separately, Harbourlight is the lead manager for an oversubscribed IPO of a high-yield retail property fund. Sarah also receives an unsolicited request from another client, Elias, to purchase a speculative crypto-mining stock that is explicitly prohibited by Harbourlight's REIT-only investment mandate. In drafting a new IPS for Dr. Aris to reflect his change in risk preference, Sarah evaluates his 'ability' and 'willingness' to take risk. She determines his ability is 'High' due to income, but his willingness is now 'Low' due to his reaction to the drawdown. Sarah should set the overall risk tolerance to:

1. Moderate, as a compromised average between the two conflicting dimensions of his risk profile.
2. High, to reflect the objective financial reality of his surgical income and long-term retirement needs.
3. Low, to honor the client's current behavioral constraints and avoid potential future panic selling.

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