Disclosure of additional compensation as a reward from employer for good performance.

David works as an portfolio manager in Simplate Fund. Recently, to improve the overall performance and returns of the fund, his employer Kelvin gave out new policy to reward some additional compensation to those managers who gain extraordinary return over the benchmark.

Must David disclose this new policy to his clients?

What do you think?

(You’ll learn more if you try to answer these questions and formulate reasons, then ask for a critique on those answers and reasons, than you will simply by asking us to answer the questions.)

I think when he is entitled to an additional compensation for his good performance in short-term returns of his portfolio, he is much likely, as a portfolio manager, to take up more risky assets which may not match the clients’ IPS. In this case, clients should be aware of that and the fact should be clearly disclosed!

Is there any other reason?

Hi haiquang,

You have posted numerous Ethics questions by now… and i am starting to see a pattern here. You need to have a bit more confidence. i think you know the answer and you just want others to confirm it. but once you have done enough practice questions you should develop the guts and know how to evaluate vignettes.

in this case, when you see new policy to reward some additional compensation , this should immediately pops out to you, and you know exactly what the manager must do!

yes, he should disclose all compensation arrangements