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Study Session 2: Ethical and Professional Standards: Application

Does this Answer from CFAI make any sense (Ethics)?

From the CFAI book page 162 (practice problems):

[question removed by admin]

I don’t understand, when did Telline reveal that the firm managed Leighton Family Trust? All he said is the Trust is no longer a client.
Anyone could explain this to me? Thanks!

Please help me explain this point from CFA level I curriculum.

“investment personnel who serve as directors may receive the securities or options to purchase securities of the company as compensation for serving on the board, which could raise questions about trading actions that might increase the value of those securities.”
 (Institute 126)
Institute, CFA. Level I 2012 Volume 1 Ethical and Professional Standards and Quantitative Methods, 7th Edition. 

list of soft dollar services

So far I have the following list

Portfolio valuation
Economic statistical databases
Client directed brokerage
Research that directly benefits investment decision making process

What else…

Soft Dollar Question

I understand the need to search for best execution (lowest cost), but say you have one broker executing for 5 bps and offering nothing but execution, and another trading for 10bps, but they offer this one report that you think will make your clients a ton of money, are you allowed to trade with the second broker at 10 bps to get this report, or do they also have to offer execution at 5 bps.?

Ethics question - Soft Dollars

Afternoon All.

Have a query on an ethics question I’m hoping some can shed some light on…

(Extract from question):

When placing trades, O’Brien often uses the services of Junk Specialist Securities. The firm has the reputation for the best high-yield research on the Street, high trading commissions, and best execution. O’Brien sometimes “pays up” on trades to obtain research. He uses the research in managing all accounts under his purview. These trades are allocated equitably over all accounts.


The practice of “paying up” for the research is:

Soft Dollar Standards / Best Execution

From Soft Dollar Standards:

“In Selecting Brokers, the Investment Manager must consider the capabilities of the Broker to provide Best Execution.”

Soft Dollar Standards; Directing of Brokerage by Institutional Investor in Hedge Fund to Compensate for Research Provided

The Soft Dollar Standards reading cites an example (“Transaction 7”) where an institutional investor (one of many) in a hedge fund requests that the Investment Manager direct a portion of the hedge fund’s brokerage to Broker ABC to compensate Broker ABC for research services provided to the institutional investor. 

Apparently this is prohhibited because Standard V of the Soft Dollar Standards requires that the Investment Manager not use Brokerage from another Client account to pay for a product o rservice purchased under the Client-Directed Brokerage Arrangement. 

Standard V(A): Investment Analysis, Recommendations and Actions

Standards of Practice Handbook, p 130:

“CFA Institute published codes, standards and guides to best practice provide members and candidates with examples of acceptable practices for external advisers and advice in selecting a new adviser.  The following guides are available at the CFA Insitute website (

Asset Manager Code of Professional Conduct

Global Investment Performance Standards

Model Request for Proposal”