Since ethics is an important part of the curriculum, here’s a question for practice: ========== Wes Smith, CFA, refers many of his clients to Bill Towers, CPA, for accounting services. In return, Towers performs routine services for Smith, such as his tax returns, for no charge. Towers has just become a member of CFA Institute. With this development, Towers must: A) only reveal to the prospects referred by Smith that he performs services for Smith. B) reveal to the prospects referred by Smith that he performs services for Smith, along with the estimated value of those services. C) reveal nothing about his relationship Smith since they are now both members of CFA Institute. D) discontinue his services for Smith.
the answer is B. My first inclination is to answer (A) as it seems unreasonable to have to provide the estimated value of services but I got burned on a question similar to this.
You’re right. I also thought it was A initially, so note to self - disclose estimated value of services performed when a referral is made.
Another fine example of having to select the least-terrible response. Towers would also have to inform his employer, clients, and ALL prospective clients, not just the prospective clients referred by Smith. Standard VI©: Conflicts of Interest: Referral Fees, p.127 “Standard VI© states the responsibility of members and candidates to inform employer, clients, and prospective clients of any benefit received for referrals of customers and clients. Such disclosure will allow the client or employer to evaluate (1) any partiality shown in any recommendation of services and (2) the full cost of the services.” Standard III(A): Duties to Clients: Loyalty, Prudence & Care, p.54 “In addition, members and candidates should endeavor to avoid all real or potential conflicts of interest and forgo using opportunities for their own benefit at the expense of those to whom their duty of loyalty is owed.”
B - Dinesh S
Standard VI© refers to Smith’s obligations not Towers’ obligations. The person receiving the benefit of the referral is Smith not Towers. I like E) Reveal nothing about his relationship with Smith since a) he doesn’t know how the heck a client came to him (what if he has 25 of these, does he hand out a brochure?) b) It’s none of his business how a client came to him and his clients don’t have to tell him. c) it’s Smith’s resposnibility to avoid the conflict of interest not Towers. Smith could potentially have a conflict of interest (I’ll refer people to Towers because Towers will do my taxes, not because Towers is a good accountant). Towers doesn’t have a conflict of interest about Smith (I’ll take referrals from Smith because I like doing his taxes. Say what?). Towers merely needs to do a good job for his clients without regard to where they came from. Disclosing that he is doing Smith’s taxes is just weird (also a little unprofessional as Smith may not want people to know who does his taxes and most people don’t want their accountants talking about them). Whoever wrote this question doesn’t get it.
I don’t understand why it’s Towers’ responsibility. Smith should tell his clients that he gets benefits for refering them to Towers.
cos Towers just earned his CFA…and he’s getting referrals
It’s not Tower’s responsibility. Who cares that Towers just earned his CFA? There is no conflict of interest with Towers. Read my explanation again. Boy do I hate these ethics questions. Compounding the stupidity of the principles is that the questions don’t even follow from the principles.
but he’s not receiving any benefits. I don’t think standard VI© applies to Towers. “Standard VI© states the responsibility of members and candidates to inform employer, clients, and prospective clients of any benefit received for referrals of customers and clients. Such disclosure will allow the client or employer to evaluate (1) any partiality shown in any recommendation of services and (2) the full cost of the services.”
Right - which is nearly identical to what I just said, i.e., “Standard VI© refers to Smith’s obligations not Towers’ obligations. The person receiving the benefit of the referral is Smith not Towers.” Think you can steal my answers? Rat buzzard.
You are absolutely right, Joey. It was pure plagiarism and I would’ve said the same to you if I beat you by 30 seconds 
You’re right it was 30 seconds. Gotta type fast here.