KIM, CFA a research analyst for Batts Bros, an Invest bankding form in NY. A CEO of a large oil and gas co that has employed Batts bros before wants tem to underwite a new stock issue. As an incentive to place the issue quickly, the CEO offers kim the opp to fly on his private jet to his ranch in texas for an exotic game hunting expedition if kim can plave 90% of the issue in one month. Kim: Must not accept in order to maintain his objectivity must obtain written soncsent from batts bros before accepting may accept the invitation without constnt if he submits a statemnt dislcosing the value of trip to Batt bros May accept invitation without constnt onloy if he discloses the trip to batts bros before accepting. Any ideas?
must not accept - too lavish and the trip is meant to influence Kim’s decision
i would pick B. what is the correct answer?
Your answer: B was correct! According to Standard IV(B) Additional Compensation Arrangements, members and candidates must obtain written permission from their employer before accepting an offer of compensation (for the performance of work done for their employer) in addition to what they receive from their employer and that is contingent on future performance. Payment to investment bankers to complete an underwriting is standard business practice. apprently it’s “Standard Practice”!!! what a load of sh1t. how are you supposed to know in this scenario??? Any help?
Is this a schweser question? I would still pick A if something like this came up on the test tomorrow…but thats just me. I mean, if anything compromises independence and objectivity, surely this would.
i believe additional comp is ok if the analyst has written consent from employer. edit - cpk, JDV etc. do you have any views?
I guess my question woud be what exactly is the difference between this and the following from the CFAI self-test: #8. Ward is scheduled to visit the corporate headquarters of Evans Industries. Ward expects to use the information obtained during the visit to complete his research report on Evans stock. Ward learns that Evans plans to pay all of Ward’s expenses, including costs of meals, hotel room, and air transportation. Which of the following actions by Ward would be the BEST course of action? a) Write the report without taking the trip. b) Pay for all travel expenses, including costs of meals and incidental items. c) Accept the expense-paid trip but disclose the value of the services accepted in the report. d) Accept the expense paid trip and write an objective report. Correct Answer is B #4. As part of his responsibilities as a research analyst, Gonzalez, along with several other analysts, takes a tour of the corporate headquarters and meets with management of a large electronics company in Asia. The company pays for the travel and accommodations of all the analysts participating in the 2-day tour and hosts a dinner, a golf tournament, and a sightseeing excursion for them as part of the trip. Under these circumstances, Gonzalez: a) May accept the reimbursement for the travel and accommodations because the firm paid for all the analysts and did not show favoritism to Gonzalez. b) Should not accept reimbursement for his travel and accommodation expenses and should not attend the dinner or participate in the golf tournament as doing so may impinge on Gonzalez’s independence and objectivity. c) May attend the dinner and participate in the golf-tournament and sight-seeing excursion because Gonzalez considers these modest “perks” acceptable in the normal course of business. d) May attend the dinner and participate in the golf tournament and sight-seeing but not accept reimbursement for travel and accommodations. Correct Answer is B
Especially the second one (#4). He can’t go to the golf outing because it impinges on his independence and objectivity…yet according to the original question in the thread, it is ok to accept a trip in CEO’s corporate jet as INCENTIVE to place the issue?? I am now confused.
i think the difference here is Batt Bross would be underwriting a new stock issue for the GAS Co. GAS Co. are a client, more acceptable to take gifts from them with permission. however in the CFAI examples the analysts are carrying out research reports on the companies, which have to be independent, so no no to gifts…
Keep in mind that in the first situation, the offer for extra compensation is coming from an existing client of the analyst’s firm, so the offer may be accepted if written consent obtained from employer. In the other examples, the offers for extra compensation are not coming from clients, but from companies that the anaysts are writing research reports on, so that the offers may interfere with their objectivity.
Oh right. That’s cleared it up. That should be written in font size 18 in bold and italics in the notes. A very confusing point. thanks for clearning that up.