Janice Melfi is a portfolio manager for Soprano Advisors. Soprano has developed a proprietary model that has been thoroughly researched and is known throughout the industry as the Soprano model. The model is purely quantitative and screens stocks into buy, hold, and sell categories. The basic philosophy of the model is thoroughly explained to clients. The director of research frequently alters the model based on rigorous research—an aspect that is well explained to clients, although the specific alterations are not continually disclosed. Portfolio managers use the model to assist them in making portfolio decisions, but, based on their own fundamental research, are allowed to purchase securities not recommended by the model. This fact is not disclosed to the clients, because the head of marketing does not think it is relevant. Which of the following statements regarding the portfolio manager’s investment decisions is TRUE? A) Soprano is violating the Standards by not disclosing the fundamental research aspect of the investment process. B) There is no violation of the Standards. C) Melfi is violating the Standards by using two investment processes that are in conflict with each other.
A) Soprano is violating the Standards by not disclosing the fundamental research aspect of the investment process.
super, you are an ethical person as well