“Carlyle [a research analyst] remains impressed with Paladin’s [subject company] growth opportunities and attention to customer satisfaction. Robinson [portfolio manager] asks Carlyle to meet with several potential new clients for Marietta [the portfolio manager and research analyst’s firm]. He believes that demonstrating his direct access to Street research analysts will help him gain new clients. Several minutes prior to the start of the meeting Robinson introduces Carlyle to one of his existing clients.Carlyle reviews with them a recent conversation she had with the Paladin CFO regarding new growth opportunities which she plans to include in her next research report. Carlyle meets with Robinson’s potential clients and discusses the stock research process.”
The answer is given as:
“Neither Carlyle nor Robinson has violated the CFA Institute Standards of Professional Conduct during the meeting with Robinson’s potential clients. By asking Carlyle to meet with several potential new clients Robinson is simply attempting to grow his client base. By merely discussing her research approach Carlyle has not given preferential treatment to these potential clients. Carlyle has not violated the standards as she has only discussed the research process and did not disclose her most current research.”
Having re-read the question, I think it is because the question refers only to the potential meeting with new clients. What a stupid way to test something, especially something as wooly as ethics. How the f*ck is this improving my knwowledge and skills!?
“… an equity analyst specializing in the beverage industry … is planning a trip to Sri Lanka to research the tea industry. Murali Premadosa, CFA, known as “Prem,” is a research analyst for a stock broking company in Sri Lanka. Mathew contacts Prem to help arrange visits to specifically identified tea estates of publicly traded companies in the highlands of Sri Lanka. Prem, wanting to enhance the business relationship with Gupta, arranges for all of Mathew’s Sri Lankan expenses to be paid for by Ashoka. These costs include food, hotel and transport. This arrangement is based on the understanding that all security transactions resulting from Mathew’s trip to Sri Lanka will be executed through Ashoka. Ashoka’s commissions are typically similar to its competitors but it can take a few extra days to execute larger volumes of trades because Ashoka is new to the brokerage business. Prem sets the itinerary, with plans to visit a minimum of six Sri Lanka tea companies in the three tea-growing regions. Mathew agrees to the visits and asks Prem to create a list of questions to ask the management of each company to which he will add his own questions.”
The answer is given as:
“Mathew’s independence and objectivity are unlikely to be compromised by Prem’s arranging the itinerary because Mathew had specifically identified the companies he wanted to visit. Mathew also added questions to Prem’s list of questions to be addressed with management during their interviews, so Mathew’s independence and objectivity would not likely be compromised. Ashoka’s offer to pay for the trip expenses also does not necessarily compromise Mathew’s independence and objectivity with regard to making investment recommendations or taking investment action (Standard I (B) Independence and Objectivity).”
Not necessarily!! What the hell does that mean? Either it is or it isn’t.
Maybe I’m just cranky today but Ethics is getting on my tits, every time I do the questions I get some wrong no matter how long I study or how many times I redo them! Back to FRA then…
Ethics is sometimes nonsensical in L2. I think CFAI needs to revise their mock questions for this chapter and take these confusing/contradictory ones out. I just hope this sort won’t be in the exam tomorrow…
I think the trick with this one is to recognise the difference between “Independence and Objectivity” with regards to the “investment decision” and the decision of which broker to use ONCE THE INVESTMENT DECISION HAS BEEN MADE.
So research is carried out properly and the decision to invest in stock A is made, and THIS decision is not influenced by the broker…then even if the broker attempts to “persuade” the investment manager to trade through his brokerage, Independence and Objectivity has not be violated as the decision to actually invest in stock A hasn’t been affected.
The standard of “Independence and Objectivity” only relates to the “investment decision” (i.e. buy/sell/hold), not which brokerage you decide to execute your trades through - that’s how I read it anyway…
You know this might lead to an entire cult of charterholders, who, just for the spite of ethics section, might be the most unethical bankers out there.
who knows, if i am pushed over the brink i might even join them
I didn’t like this either. They said it doesn’t mean he is compromised necessarily, because he made his own list of questions and he specifically asked for these companies. If you recall, I think the Code and Standards also say it is okay to accept paid for accommodations when they are standard and the availability of commercial accommodations is low(ie, you can’t book yourself a night at the Best Western, or whatever). The question says the travel will be in the “highlands” of India. To me, this means dirt roads and a hilly country side out in the middle of nowhere, so I wonder if this played into the answer at all. In other words, it’s okay because he wouldn’t be able to arrange this on his own since it’s in the middle of nowhere.
Thoughts?
I also thought for question 6 that he should have disclosed this paid trip, but they don’t mention that… I think they are just sloppy at times. I think he should have disclosed it to avoid the appearance of lacking IO to anyone who doesn’t know the situation very well
Personally, I will keep this in mind, but I will only think of the stuff that makes sense. For example, the fact that he asked for these companies and made his own questions to ask in addition to Prem’s, and it also doesn’t say it was extremely lavish.
I know, I know! In Level I, ethics was good for an 85 - 90% to lift my overall score. In Level II, ethics seems so dicey, I might not get the ethics “adjustment.” Sigh.