I think there are far too many ethics q’s to go through in the q-bank, and most are very clear. It would be beneficial for all of us to look at the most difficult and unclear examples. If you read the question and if you can reason through it - DO NOT POST!!!. Only find the most difficult examples. Obviously some questions you will see on here will be clear to you and not so much to the person who posted. However the goal is to expose the more difficult side of ethics, as best as we can. Post: 1. question + answer.
Lets see how much attention my type attracts…let the games begin
Glenarm Case Study (Refer to CFA Institute Standards of Practice Casebook for details.) Peter Sherman, CFA, has recently joined Glenarm Company after spending 5 years at Pearl Investment Management. He is responsible for identifying potential Latin American investments. Previously, Sherman held jobs as a consultant for many Latin American companies and had plans to continue such consulting jobs without disclosing anything to Glenarm. After resigning, but before leaving his employment at Pearl, Sherman had encouraged Pearl customers to move their accounts to Glenarm. He contacted accounts Pearl had been soliciting for business. He also contacted potential clients that Pearl had rejected in the past as too small or incompatible with the firm’s business. Furthermore, he convinced several of Pearl’s clients and prospects to hire Glenarm after he joined Glenarm. He also identified materials from Pearl to take with him, such as, 1. sample marketing presentations he had prepared, 2. computer program models for stock selection, 3. research materials on companies he had been following, 4. a list of companies recommended by Sherman for potential investment which were rejected by Pearl, 5. news articles for potential research ideas. Which of the following statements concerning Sherman’s actions is TRUE? A) Sherman did not violate any Standard by taking away the news articles from his previous employer, Pearl, for potential research ideas. B) Sherman did not violate Standard IV(A) since members can engage in independent consulting practice as long as their employer policy does not specifically prohibit it. C) Sherman did not violate any Standard by taking computer program models used for stock selection. D) Sherman did not violate Standard IV(A) by soliciting clients that were rejected by Pearl either because they were too small or unsuitable as long as winning their business did not adversely affect Pearl. D) Sherman did not violate Standard IV(A) by soliciting clients that were rejected by Pearl either because they were too small or unsuitable as long as winning their business did not adversely affect Pearl. Standard IV(A) addresses Loyalty to the Employer and depriving the employer of profit opportunities is a violation of this standard. Because Pearl had no interest in rejected clients and had turned their profit potential down already, soliciting them is not a violation. Taking away news articles and computer program models is a violation of Standard IV(A) because Sherman took away employer property, which could be used by Pearl or Sherman’s replacement. Engaging in independent consulting practice is a violation IV(A) because Sherman not only compromised his independence and objectivity, but also did not obtain explicit written consent of his new employer, Standard IV(B), Additional Compensation Arrangements. Sherman’s attempt to lure away clients from Pearl while he was still employed at Pearl is: A) not a violation of Standard V(A) because it was conducted “after hours” on Sherman’s own time. B) not a violation of Standard IV(A) because the clients were agreeable to changing firms. C) a violation of Standard IV(A) because it undermined Pearl’s business and its profit opportunities and caused damage to Pearl’s business. D) not a violation of Standard IV(A) because they would have followed Sherman to his new firm anyway, and no harm to Pearl was done as a result. C) a violation of Standard IV(A) because it undermined Pearl’s business and its profit opportunities and caused damage to Pearl’s business. An attempt, successful or not, to lure away existing clients of the current employer is a violation of Standard IV(A) as it causes damage to the employer’s business. Others are incorrect because: “After hours” solicitation is not an excuse if it damages the employer’s business; the fact that Pearl’s clients were agreeable does not absolve Sherman of Standard IV(A) violation; even if Pearl’s clients would have followed Sherman to his new employer anyway, Sherman, by soliciting such clients, damaged his employer’s business. The focus is on Sherman’s actions.
I would have gone for D. Can I suggest something. Usually candidates do not post the answer here immediately. Candidates post their answers and then the originator writes the answer after some time. And what a coincedence i was reading the part duty to the employer yesterday!!! Thanks
Wonder I understand your point and thank you for your suggestion. However I think the idea is to expose difficult questions. Here you can choose the answer you think it is, but don’t have to sit and wait for the answer and be confused whe 10 candidates are split between A & B. The idea is to save time by not going over all of the examples on ethics in qbank. I have done 50 questions and got like 7 wrong, well that doesn’t make sense for me to waste time. I want the hard questions instead. If no one is up for it, then so it be.
I choose C but A was a close one. Where do you draw the line, to whom you will send the report. I understand the analyst has the right to send the report to certain group and address a specific objective, but perhaps the other clients with equity allocation would have been interested in a stock that is not correlated with interest changes…? Was the manager analyst being fair? What if it would have been investment manager instead of the analyst, would the answer been A then? An analyst finds a stock with historical returns that are not correlated with interest rate changes. The analyst writes a report for his clients that have large allocations in fixed-income instruments and emphasizes the observed lack of correlation. The clients with allocations of fixed income instruments are the only clients to see the report. According to Standard V(B), Communication with Clients and Prospective Clients, the analyst has: A) violated the Standard concerning fair dealings with all clients. B) violated the Standard by emphasizing the information concerning the correlation. C) not violated the Standard. D) violated the article in the Standard concerning facts and opinions. Your answer: C was correct! Recommending a stock whose return is uncorrelated with interest rate changes is appropriate for the clients described in the problem. Emphasizing the lack of correlation is appropriate as long as the analyst makes no guarantees concerning the relationship in the future. Reporting historical correlation is a presentation of fact, and is not in violation. The analyst is free to show the report only to investors for whom the investment is appropriate.