From QBank: Bill Valley has been working for Advisors, Inc., for several years, and he just joined CFA Institute. Valley’s sister just received a large bonus in the form of stock options in Zephyr, Inc. Valley’s sister knows nothing about financial assets and offers Valley a week at her holiday home each year in exchange for Valley monitoring Zephyr and the value of her stock options. In order to comply with the Code and Standards, Valley needs to inform Advisors of: A) the compensation in the form of the use of the holiday home only. B) the fact his sister owns the options on Zephyr stock only. C) nothing since no money is involved and it is a favor for a family member. D) both the use of the holiday home and his sister’s options.
D. Compensation disclosure and conflict of interest.
D… Informing Advisors about his sister’s options would help the firm in determining if Valley should be doing the analysis related to Zephyr.
I hate these questions. What if Bill is only doing this work on his own time on Saturday’s? Would the answer be A?
I think question is primarily to check your knowledge on the Sister’s ownership of options. What if he work during the weekends and issue a favourable recommendation that could increase the price of the options and the underlying asset?
D would only be a valid answer, when Valley had to make recommendations on Zephyr. I would say C is the answer.
I say A only because Valley is not a beneficiary of stocks at Zephyr
pepp Wrote: ------------------------------------------------------- > D would only be a valid answer, when Valley had to > make recommendations on Zephyr. > > I would say C is the answer. I got this quesiton wrong too. I had C, but schweser Qbank says D
ANSWER: Your answer: A was incorrect. The correct answer was D) both the use of the holiday home and his sister’s options. According to Standard IV(A), Loyalty to Employer, Valley must inform Advisors of his outside consultation even if it is not for monetary compensation. According to Standard VI(A), Disclosure of Conflicts, Valley must also disclose possible conflicts of interest, and his sister’s position qualifies. --It still seems a little strange to me that he needs to disclose his sisters options.
Potential insider information with such a large amount of options? ida know.
It is D, but the red herring is A Go with D – compensation does not have to be actual $ – vacation at a getaway = comp