The manager of a discretionary account places client funds in a suitable investment because it provides a higher commission than alternatives that are also suitable for the client. The selected investment subsequently appreciates in value. This investment manager did not:
a. place the client’s interests first.
b. face an ethical dilemma because the investment was profitable.
c. have a conflict of interest because the investment was suitable for the client.

have a conflict of interest because the investment was suitable for the client.

Explanation:

A manager as an agent of the client is supposed to always act in the interest of his principal.

In this scenario the manager places client funds in a suitable investment because it provides a higher commission than alternatives that are also suitable for the client. The selected investment subsequently appreciates in value.

The manager acted in the interest of the client and this resulted in return on investment

c. have a conflict of interest because the investment was suitable for the client.

Explanation: A conflict of interest situation arises when an individual (the manager of a discretionary account in this instance) has competing interests or loyalties because of their duties to more than one person or organization and serving one interest could adversely affect a duty owed to make decisions for the benefit of a third party (the client). The manager did not have a conflict of interest because the investment was suitable for the client. However, a manager who knowingly places clients funds in an investment which are not in their best interests, but which earn the manager a bigger commission, would be guilty of conflict of interest.