Robert Miguel, CFA, is a portfolio manager for a large investment advisory firm. In appreciation for his impressive portfolio returns last quarter, one of his clients, Kevin Goodman, has invited Miguel and his wife to be his guests at his luxury suite for a major league baseball playoff game. Miguel, a baseball fan, accepts the invitation and attends the game. The next day at work, Miguel discusses the outcome of the game with his supervisor but doesn’t mention the fact that he attended the game with a client. According to the CFA Institute Standards of Professional Conduct, Miguel’s actions: A. are in violation of both Standard I(B) Independence and Objectivity and Standard I(A) Knowledge of the Law. B. are not in violation of Standard I(B) Independence and Objectivity or Standard I(A) Knowledge ofthe Law. C. are in violation of Standard I(B) Independence and Objectivity but are not in violation of Standard I(A) Knowledge of the Law. D. are not in violation of Standard I(B) Independence and Objectivity but are in violation of Standard I(A) Knowledge of the Law.
Am going with C. He has not broken the law but his independence and objectivity have been called into question. While it is ok to accept gifts from clients he did not get written approval from his boss/company and therefore there is doubt as to how his other clients may be treated. Will they get the full benefit of his work as this generous client most likely will? Any other opinions?
- Roger Baker, CFA, is a fixed-income portfolio manager for a medium-sized investment firm and has been asked to serve on the board of directors for Cold Delight, Inc., a national chain of ice cream shops. Baker personally owns stock in Cold Delight, but the firm has no debt securities outstanding. Baker’s former college roommate is the CEO ofthe company. As a member of the board of directors, Baker would attend four meetings each year and receive $15,000 a year in director’s fees, and he and his immediate family will also receive a 50% discount in all Cold Delight stores. According to Standard IV(B) Additional Compensation Arrangements, Baker: A. (must provide written disclosure and obtain written permission from his employer before accepting the board position and its accompanying benefits. B. must provide written disclosure and receive permission from his employer, but it needs not be written. C. may accept the position without permission but must disclose the duties ofthe position and compensation to his employer. D. does not need to disclose the offer or receive permission.
A. Written disclosure and permission is required for Additional Compensation Arrangements
I went with B on the first one because I don’t believe his objectivity or independence had been violiated. ANSWER is A to the first one Second one I went with B disclosure but not written. ANSWER IS D These are just driving me nuts
The first one makes no sense… What law did he break??
I know from schweser 2008 practise test 1 afternoon session
Sorry the first one the answer is A. Question 2 on practise test 1 afternoon session
Yes, I got it wrong there as well. I still disagree with it being Knowledge of the Law. No laws were broken by accepting a gift from a client. Anyone willing to argue this one?
For the First one: Knowledge of the law = members/candidates must comply with all rules, laws etc (including the CFA Standards) etc etc etc So Robert Miguel breaches Independence and Objectivity. Because he breaches the Code and Standards he also breached Knowledge of the Law! Dumb I know, but that was the only way I could reason tht answer. The implication is that any breach of the Code/Standards also breaches Knowledge of the Law.
wow didn’t think of that. Thanks
so sitting on a board of directors of another company doesn’t need to be approved by your current employer? Doesn’t sound reasonable considering I work in Compliance and in charge of Outside Business Activity forms.
Frank Friendly is the top institutional salesman at Dewey, Cheatem, and Howe (DC&H) making a comfortable six-figure income. He has many active outside interests and is currently serving as a volunteer boardmember for a small, privately held, biotech firm that meets once per quarter. DC& H policies require that research personnel report any ownership in publicly traded securities and that sales personnel report any significant ownership (defined as an amount greater than 1% of the employee’s annual salary) to its compliance department. Friendly currently owns $900 worth of IBM stock, which he received as a gift from a relative. According to the Standards of Professional Conduct, which of the following is Friendly required to disclose to his employer? Board Seat IBM Stock Yes or No? Yes or No?
Answer is No and No but here is why: Choice “a” is correct. The Code and Standards require that members avoid situations that infringe, or could be perceived to infringe, on a member’s independence or objectivity. Since the biotech firm is not publicly held, does not pay additional compensation, and does not require a significant amount of Friendly’s time that might infringe on his duties at DC&H, he is not required to disclose the board membership. CFA Institute recommends that unavoidable conflicts be disclosed, including material beneficial ownership in stock. DC&H defines a material ownership interest as one that exceeds 1% of the sales employee’s income. Since $900 would not exceed the 1% threshold on a six-figure income, Friendly is not required to disclose his ownership to DC&H. Choice “b” is incorrect. Participation in the outside board of directors need not be disclosed because the firm is private, does not pay additional compensation, and does not require a significant amount of Friendly’s time that might infringe on his duties at DC&H. Choice “c” is incorrect. Owning $900 worth of stock does not represent significant ownership in these securities. As a salesman, Frank is not required to report this investment. Choice “d” is incorrect. Participation in the outside board of directors need not be disclosed because the firm is private, does not pay additional compensation, and does not require a significant amount of Friendly’s time. Also, owning $900 worth of stock does not represent significant ownership, so it does not have to be disclosed.
^ I would have said Yes No.
Bump Question #1: Answer is A. Recall that any violation is also a violation of Standard I(A) Knowledge of the Law. So if you violate Standard III(B), you also violate Standard I(A). Question #2: I went with and still agree with A. The answer is apparently D, and one could probably justify that it doesn’t conflict with his work at all. However, I am under the assumption that documentation is always a plus, and disclosing such information could prevent the appearance of future conflicts of interest if the company issues debt securities. It makes no sense that he would wait until the company issues such securities to disclose this conflict. Question #3: Answer is NO-NO - - JP_RL_CFA had a fantastic write-up explaining why. Can’t really say much more then that.