Ethics - Diligence and Reasonable Basis

2 questions here from Schweser that seemed conflicting and wanted to get people opinions on how they handle this come test day:

The first one is as follows:

ABC, CFA, is the CFO of a regional bank and serves on the banks investment committee. The investment committee is considering the appropriate actions to take with regard to the bank’s temporary surplus of cash. The committee composed of analysts and investment personnel, recommends to the banks CEO that the cash be invested in intermediate-term treasury notes. ABC feels that the recommendation is too conservative. However, Matthews is the only member of the independent committee who disagrees with the recommendation. In accordance with CFAI Standard of Professional Conduct, Matthews should most appropriately:

  1. decline to be associated with the recommendation

  2. privately express his concerns to his supervisor

3) document his difference of opinion with the committee

The answer here is 3. The rationale is that the recommendation reflects the consensus of the group and not necessarily the opinion of the member or candidate. If the consensus opinion has a reasonable basis, the member does not have to dissociate from the report but should document the difference of opinion.

Now for question #2:

XYZ, CFA works in a large group that decides on recommendations by consensus. Girard does not always agree with the group consensus, but he is confident in the group’s analytical ability. To comply with the Code and Standards when the group issues a recommendation with which he disagrees, XYZ:

1) does not need to take any action

  1. must request that his name be removed from the report.

  2. should include his independent opinion as an appendix to the groups report.

Applying the exact same logic from #1, the answer should be #3, however it is actually #1. Their rationale is that Standard V(A) Diligence and Reasonable basis does not require a Member to dissociate from a group recommendation, as long as the opinion has a reasonable and adequate basis.

Can anyone provide any insight how I can distinguish between these two seemingly comparable questions and why one you have to act and the other you don’t?

I believe it’s because in the first answer, the member is the CFO and any financial decisions of the company are reflected on him. He does not agree with the consensus but for audit purposes if they were to come back and ask him why after an unfavorable loss he would have it in writing.

I believe in the second one, he is a part of a LARGE group that decides on consensus, in a large group you are always going to have differing opinions and would never be able to reach full consensus and therefor the need for documentation would not be necessary.

That’s my rationale and by no means do I consider myself an expert in the matter. I too find that I’ve been seeing some conflicting answers and have decided come the test I will just go with what my gut is saying in those circumstances and be done with it.

Good Luck!