CFA 2018 AM Mock Ethics question 5

To ensure timely and efficient trades in each of the markets in which the Fund invests, only one stockbroker in each market should be used. The board should also consider buying an equity stake in each of the appointed brokers as an added profit opportunity


Which aspect of the Asset Manager Code of Professional Conduct would most likely be violated? A) Priority of transactions B) Fair dealing C) Best execution


C is correct. The Asset Manager Code calls for the manager to maximize client portfolio value by seeking best execution for all client transactions. If trades only go through one stockbroker, best execution cannot be ensured. In addition, any equity ownership in these brokers should be disclosed because this arrangement has the potential for conflicts of interest.

Fully agree, but this wouldn’t go under “Fair dealing”?

issue is with the single broker.

the “equity” stake is a “should be disclosed” item - but the usage of single broker is a “MUST” issue.

what do you mean exactly?

what I meant to say -

The part that the equity stake “should” be disclosed - is a item for consideration - but is not a “required” disclosure. (i was mentioning the usage of “should” vs. “must” to distinguish the two).

a “should” disclose is a violation if there are no other “musts” in the picture.