Alexander Newton, CFA is the chief compliance officer for MIlls Investment Limited. newton institutes a new policy requiring the pro rata distribution of a new security issues to all discretionary accounts for which the new issues are appropriate. The policy does not provide for the distribution of new issues to non-discretionary accoutns, but this is disclosed to all existing and potential clients. Did newton most likely violate any CFA institute standards of professional conduct? A No B. Yes, because the distribution policy fails to treat all discretionary accounts equally C. Yes, because disclosure of inequitbale allocation methods does not fulfill the duty for fair and equitable trade allocation procedures D. Yes because the discretionary accounts for which the new issues are not appropriate should still be offered the chance to participate in teh offerings
C. New issues need to be offered to all accounts, not just those the investment company has discretion over.
Its C. From the code, “A member or candidate’s duty of fairness and loyalty to clients can never be overridden by client consent to patently unfair allocation procedures.” Edit: typo
what is the difference between a discretionary account and a non-discretionary account? ANd why would a company handle accounts they do not have discretion over
discretionary - broker has discretion to buy/sell investments in the account non-discretionary - say i don’t need his advice/expertise. i know what i want to buy/sell and i just need a gateway to the market.
niraj_a Wrote: ------------------------------------------------------- > discretionary - broker has discretion to buy/sell > investments in the account > > non-discretionary - say i don’t need his > advice/expertise. i know what i want to buy/sell > and i just need a gateway to the market. no. Discretionary means that you don’t need the client’s permission to enact transactions. Non-discretionary means you do. you have described execution only - it’s perfectly normal to have a non-discretionary advisory relationship with a client.
So basically, from ethics point of view, Discretionary and Non-discretionary account should be treated exactly same, right?
One difference between the two is that according to the GIPS, non-discretionary accounts must be included in the definition of the firm but may not be included in composites.