jimmylegs Wrote: ------------------------------------------------------- > I think whether it was discretionary or not is > irrelevant. As her husband, he owns 50% of those > assets by law, whether his name is on the account > or not. Putting IPO shares into his wife’s > account sounds way out of bounds. agreed the real question was whether it is ok to allocate non oversubsribed IPO shares to her account which seems ok to me. there was an option saying that he should have known certain ipos were hot before allocation and not put her in for shares.
does anyone know what the EXACT question was? it seems like people here were answering two different questions.
Depends on the state or country in terms of whether he owns 50% of her account by law. Since CFAI doesn’t like to specify laws and regulations since they vary so much by country, I don’t think that should be a consideration. There are way to many what ifs on this question to definitively say which answer is right or wrong. The CFAI, and only the CFAI, knows for sure.
hezagenius Wrote: ------------------------------------------------------- > Depends on the state or country in terms of > whether he owns 50% of her account by law. Since > CFAI doesn’t like to specify laws and regulations > since they vary so much by country, I don’t think > that should be a consideration. > > There are way to many what ifs on this question to > definitively say which answer is right or wrong. > The CFAI, and only the CFAI, knows for sure. That was my logic as well, I believe it was not correct to “assume” he had beneficial interest in the account. I based my solution on the facts of the case, 1 - Wife is client. 2 - non-fee paying ( doesn’t matter) 3 - Discretionary But we’ll never know …
mo34 Wrote: ------------------------------------------------------- > hezagenius Wrote: > -------------------------------------------------- > ----- > > Depends on the state or country in terms of > > whether he owns 50% of her account by law. > Since > > CFAI doesn’t like to specify laws and > regulations > > since they vary so much by country, I don’t > think > > that should be a consideration. > > > > There are way to many what ifs on this question > to > > definitively say which answer is right or wrong. > > > The CFAI, and only the CFAI, knows for sure. > > > That was my logic as well, I believe it was not > correct to “assume” he had beneficial interest in > the account. I based my solution on the facts of > the case, > > 1 - Wife is client. 2 - non-fee paying ( doesn’t > matter) 3 - Discretionary > > But we’ll never know … I think whether the account was fee-paying or not does matter! If it was fee paying, then I would agree that the account would need be treated as a client account and allocating the IPO would be fine.
nevermindname Wrote: > > I think whether the account was fee-paying or not > does matter! If it was fee paying, then I would > agree that the account would need be treated as a > client account and allocating the IPO would be > fine. I believe that fee-paying or not , you still have fiduciary duties toward your client. If a friend is asking for your advice for free, you will still have to follow the code in terms of fiduciary duties, care, bla bla bla … I guess that’s why you have to disclose that to your employer as well.
it’s his wife’s account. not his ailing moms, his aunt, or second nephew. of course it’s beneficial. find me a divorce court in the country that wouldn’t give the husband a % of the account he himself was managing. even if it’s kept in sole and seperate if it is being actively managed the spouse has a legit claim on a % of the accounts. I run into this all the time. A lot of execs I deal with don’t want to sell their sole and seperate stock position in their company because selling it would mean the wife could get a % in the divorce. and if the spouse him/herself is managing it (for free!) i’d say he/she would definetly get some of the money (unless it is a trust).
mo34 Wrote: ------------------------------------------------------- > That was my logic as well, I believe it was not > correct to “assume” he had beneficial interest in > the account. I based my solution on the facts of > the case, > > 1 - Wife is client. 2 - non-fee paying ( doesn’t > matter) 3 - Discretionary > > But we’ll never know … Yeah, same here. Does he have beneficial ownership? Maybe yes, maybe no. In the real world, absolutely. In the CFAI world, who knows. Normally I would have said he did but there was a question in a CFAI sample exam with a similar scenario and it said the manager was not beneficial even though it seemed he should be. That is why I think hers should be treated like any other account. I am not confident in the answer but I was trying to be consistent with what CFAI’s explanation was. There was no evidence in the case to lead you conclusively one way or the other.
oskigo Wrote: ------------------------------------------------------- > jimmylegs Wrote: > -------------------------------------------------- > ----- > > I think whether it was discretionary or not is > > irrelevant. As her husband, he owns 50% of > those > > assets by law, whether his name is on the > account > > or not. Putting IPO shares into his wife’s > > account sounds way out of bounds. > > > agreed the real question was whether it is ok to > allocate non oversubsribed IPO shares to her > account which seems ok to me. there was an option > saying that he should have known certain ipos were > hot before allocation and not put her in for > shares. I see where you are coming from here so you picked “should have decided if it was a hot issue or something”? I could see that I guess but if they went that way its cr@p I think they say it is prudent to not allocate ipo shares to beneficial accts. And I completely think a wifes acct has got to be considered beneficial if you cannot assume that something is wrong with that question, I remember examples where they assumed wifes acct was beneficial.
mo34 Wrote: ------------------------------------------------------- > > I believe that fee-paying or not , you still have > fiduciary duties toward your client. If a friend > is asking for your advice for free, you will still > have to follow the code in terms of fiduciary > duties, care, bla bla bla … I guess that’s why > you have to disclose that to your employer as > well. you have no fiduciary duty to give your clients allocations in oversubcribed ipos.
s23dino Wrote: ------------------------------------------------------- > oskigo Wrote: > I see where you are coming from here so you picked > “should have decided if it was a hot issue or > something”? I could see that I guess but if they > went that way its cr@p I think they say it is > prudent to not allocate ipo shares to beneficial > accts. And I completely think a wifes acct has got > to be considered beneficial if you cannot assume > that something is wrong with that question, I > remember examples where they assumed wifes acct > was beneficial. no actually i picked that it was in complaince with the cfa code of ethics, but that answer looked like the only other posible right answer IMO. if they wanted to indicate the wife’s account was not beneficial they would have said it was a trust or something.
oskigo Wrote: ------------------------------------------------------- > mo34 Wrote: > -------------------------------------------------- > ----- > > > > I believe that fee-paying or not , you still > have > > fiduciary duties toward your client. If a > friend > > is asking for your advice for free, you will > still > > have to follow the code in terms of fiduciary > > duties, care, bla bla bla … I guess that’s > why > > you have to disclose that to your employer as > > well. > > > you have no fiduciary duty to give your clients > allocations in oversubcribed ipos. Is that based on your experience or based on the Code of Ethics ? Because I have not read that anywhere the last 3 years.
mo34 Wrote: ------------------------------------------------------- > I believe that fee-paying or not , you still have > fiduciary duties toward your client. If a friend > is asking for your advice for free, you will still > have to follow the code in terms of fiduciary > duties, care, bla bla bla … I guess that’s why > you have to disclose that to your employer as > well. There is a very similar example on page 137 of the CFA Standards of Practice handbook (Can’t copy the entire example for copyright reasons. --> http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2005.n3.4000) where a PM manages his parents’ fee-paying account and has a practice of first allocating IPO shares to all his other clients and then the rest to his parents’ account. The CFAI conclusion is that the PM is in breach of the code by treating his parent’s account differently. As FEE-PAYING clients, they are entitled to the same treatment as other clients. However, the wife’s account was NON-FEE Paying, hence it should be ok not to allocate the IPO shares.
mo34 Wrote: ------------------------------------------------------- > Is that based on your experience or based on the > Code of Ethics ? Because I have not read that > anywhere the last 3 years. the cfai code of ethics says you can allocate on a prorata basis, which i’d say would definetly discriminate against your smaller lower fee paying clients.
nevermindname Wrote: ------------------------------------------------------- > > There is a very similar example on page 137 of the > CFA Standards of Practice handbook (Can’t copy the > entire example for copyright reasons. --> > http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2005.n > 3.4000) where a PM manages his parents’ fee-paying > account and has a practice of first allocating IPO > shares to all his other clients and then the rest > to his parents’ account. > > The CFAI conclusion is that the PM is in breach of > the code by treating his parent’s account > differently. As FEE-PAYING clients, they are > entitled to the same treatment as other clients. > In the exam question though, the wife’s account > was non-fee paying. Hence it was ok not to > allocate the IPO shares. As I said, I don’t believe we’ll ever know the answer for sure. First you have the issue of wife-client, the CFAI code is not based on American laws, so assuming that husband is automatically beneficiary I believe is not correct. What if the wife inherited this money from her parents and decided to keep it separate ? That’s a possible scenario. Then you have the issue of fees versus non-fees, if you volunteer to sit on the board of a charity for example, you would still have fiduciary duties, even if you’re not getting paid. Being paid or not is not a factor for the CFAI, for example the unpaid intern is considered an employee. Then you have discretionary vs. non-discretionary, but here we all agree.
oskigo Wrote: ------------------------------------------------------- > mo34 Wrote: > -------------------------------------------------- > ----- > > > Is that based on your experience or based on > the > > Code of Ethics ? Because I have not read that > > anywhere the last 3 years. > > > the cfai code of ethics says you can allocate on a > prorata basis, which i’d say would definetly > discriminate against your smaller lower fee paying > clients. It’s pro rata based on order size, not account size. Paying fees or not is not a factor here.
My question is why non-fee paying accounts should be treated any differently? Say if the firm waives all fees for a charity. Does that mean the firm can treat this charity account any differently just because they’re not paying any fees?
This was a bogus question! Nonetheless I’m going to have to go with what people are saying with reference to fee paying vs non-fee paying. It seems as if the discretionary caveat was only there to distract the frantic test taker. Which of the three factors is MOST important: oversubscribed, non-fee vs. fee-paying, or discretionary?
mo34 Wrote: ------------------------------------------------------- . > > It’s pro rata based on order size, not account > size. Paying fees or not is not a factor here. you are correct. my bad.
mo34 Wrote: ------------------------------------------------------- > As I said, I don’t believe we’ll ever know the > answer for sure. > > First you have the issue of wife-client, the CFAI > code is not based on American laws, so assuming > that husband is automatically beneficiary I > believe is not correct. What if the wife inherited > this money from her parents and decided to keep it > separate ? That’s a possible scenario. > > Then you have the issue of fees versus non-fees, > if you volunteer to sit on the board of a charity > for example, you would still have fiduciary > duties, even if you’re not getting paid. Being > paid or not is not a factor for the CFAI, for > example the unpaid intern is considered an > employee. > > Then you have discretionary vs. non-discretionary, > but here we all agree. page 133 of the before linked cfia manual: “For purposes of the Code and Standars, a member or candidate is a “benefical owner” if the member or candidate has a direct or indirect personal interest in the securities.” page 134: “Personal transactions include those made for the member or candiate’s own account, for family (including spouse, children, and other immediate family members) accounts.” can we please put this to rest now?