Mr. Lee, aged 68, retired last year and explicitly told his representative, Maria, that his primary investment goal is capital preservation and generating modest, predictable income to supplement his pension. Maria recommends investing 75% of his portfolio into a sector-specific equity fund focused on emerging markets technology. Which suitability principle has Maria most likely violated?

Question: Mr. Lee, aged 68, retired last year and explicitly told his representative, Maria, that his primary investment goal is capital preservation and generating modest, predictable income to supplement his pension. Maria recommends investing 75% of his portfolio into a sector-specific equity fund focused on emerging markets technology. Which suitability principle has Maria most likely violated?

Answer options:

• Ensuring the client understands the fee structure. ✅ Acting in the client's best interest based on their stated objectives and risk tolerance.
• Confirming the client has sufficient investment knowledge.
• Providing clear disclosure of potential conflicts of interest.

Correct answer: Acting in the client's best interest based on their stated objectives and risk tolerance.

Explanation: Maria's recommendation of a high-risk, volatile equity fund for a retiree prioritizing capital preservation directly contradicts her client's stated investment objectives and risk tolerance, indicating a clear suitability violation.