Paul Drake is employed by a company to provide investment advice to participants in the firm’s 401(k) plan. Company stock is one of the investment options in the plan. Drake feels that the stock is too risky for employees to own in their 401(k) plan and starts advising them to pull out of the stock. The Treasurer of the company calls Drake and tells him that he will be fired if he continues making such advice because he is violating his fiduciary duty to the company. Drake should: A) cease making sell recommendations because of the harm that can come to himself. B) make sell recommendations but point out that the company Treasurer has a differing and valid point of view. C) continue to advise employees to sell their stock. D) tell employees that he cannot provide advice on company stock because of a conflict of interest.
C) continue to advise employees to sell their stock. His duty is to the participants of the Plan, not to the management of the company. So he should do right by his client. That is Loyalty, Prudence and Care. CP
The code says clients’ interest come befores employer’s under this circumstance. So it should be either C or D. I will go with C. However, what if he gets fired? is there any regulation can protect the analyst’s interest?
Isnt this Whistleblowing… going against the employer bcoz it is the right thing .
C reasonable basis suggests C, so that is the course to take
D. He should advise to sell, but it is unrealistic to do so with his job at stake, so he should not advise on company stock at all.
showtyme , can you tell us the answer? C and D seem both possible now.
c. fiduciary duty is to the plan participants not the company in this case. the duty to employees standard applies here.
Wow! you guys are good. the answer is C. I chose d. I guess Paul Drake would have to be fired by his employer. that’s sad
it’s definitely C.
Showtyme. Where is this question from? I think I’ve seen it before and the answer was D because it was unreasonable to lose your job over this. I do agree with the answer of C, I’m just wondering the source.
if his employer fired him for that it’d be illegal, and he could probably sue
also, the advisor has a right/obligation to make his analytic decision in an objective and independent manner. he should probably resign as the advisor if co mgmt is pressuring him to put out a recommendation opposite his analysis.
it is a Qbank question. Here is their explanation: Paul Drake is employed by a company to provide investment advice to participants in the firm’s 401(k) plan. Company stock is one of the investment options in the plan. Drake feels that the stock is too risky for employees to own in their 401(k) plan and starts advising them to pull out of the stock. The Treasurer of the company calls Drake and tells him that he will be fired if he continues making such advice because he is violating his fiduciary duty to the company. Drake should: A) cease making sell recommendations because of the harm that can come to himself. B) make sell recommendations but point out that the company Treasurer has a differing and valid point of view. C) continue to advise employees to sell their stock. D) tell employees that he cannot provide advice on company stock because of a conflict of interest. Your answer: D was incorrect. The correct answer was C) continue to advise employees to sell their stock. Although Drake is paid by the company, his fiduciary duty is to the plan participants. His advice cannot be compromised by business considerations, otherwise he will be violating the Standard on loyalty, prudence, and care.