I do not understand why CFAI 2011 Mock Afternoon Question 8, the correct answer is C - Additional Compensation Arrangements.
The question specifically refers to additional compensation for selling products as a competition, to which the employees are restricted from disclosing to customers. The answer sites conflicts of interest with the employees and employer. Totally lost on this one.
I believe that the the least likely violation was A - Misrepresentation. What specifically are Rayne employees misrepresenting? They are advised to sell front-end loaded funds, but it does not state they misrepresent this product and its feature or performance in any way.
The other very technical aspect of why C should not be correct is that Rayne is technically a third-party to OAM to which Rayne employees are not disclosing the additional OAM compensation to the Rayne management.
Additional Compensation Arrangements relates to employee-employer relationship only, not clients, and it states that such arrangements must be disclosed to employer. If the employer encourages a compensation package to the employees it goes without saying they know about it.
The fact that the employer restricts employees communicating this with clients should raise a flag regarding Misrepresentation. Hypocrisy, if you will. Selling a product to unaware clients hiding the true motivation of the sale.
Yes, but Rayne’s employees were encouraged by OAM to not disclose the additional compensation arrangement, does not mean they actually misrepresented anything.
Rayne employees are participating in the competition are a third party to OAM. OAM is providing additional compensation to Rayne employees which are not disclosing that compensation to their managers.