Kevin Bryan is a financial analyst for Summit Investments. Bryan recently completed a research report recommending the stock of Independence Medical Company. Bryan failed to disclose that he has a material ownership interest in Independence Medical through a family trust. Kim Scott, a CFA Charterholder with Overland Associates, is invited to attend an investment management conference in the Cayman Islands. The sponsor, one of Scott’s clients, has offered to reimburse Scott for all of her expenses. Scott accepts the sponsor’s offer and discloses the arrangement to her employer in writing. Based on the CFA Institute Research Objectivity Standards, which of the following statements is CORRECT? A) Summit is in violation of the Research Objectivity Standards but Overland is not in violation. B) Both Summit and Overland are in violation of the Research Objectivity Standards. C) Neither Summit nor Overland is in violation of the Research Objectivity Standards. * * * * * * * * * * * * ---------------------- Your answer: B was incorrect. The correct answer was A) Summit is in violation of the Research Objectivity Standards but Overland is not in violation. Summit is in violation because policies and procedures were not in place to prevent Bryan from recommending a stock without disclosing a potential conflict of interest. Overland is not in violation. Scott can accept reimbursement since the sponsor is a client and the reimbursement was disclosed to Overland. *** This one caught me off guard. Still think ‘B’ is the proper choice. Any opinions?
Summit - ROS says disclose if you are owning stock or have an interest in stock you are recommending - that was violated. do not see an issue with Overland. The disclosure in writing of reimbursement was made to the employer - so looks fine… language wise - this is vastly cut and dry with respect to the twists the institute does throw at us though! Looks like I need a translator on exam day for the ethics portion, definitely…
The first is a definite violation, no point commenting. To add to what CP said- The key word is client, as ‘gifts’ from them are usually given a bit more leeway. As long as you communicate it to your employer, and it doesn’t affect your objectivity with other clients, it’s usually fine.
Haha, what’s funny is I interpreted the 2nd situation as if the client was a target of research. I believe it would be a violation if a research target was involved, but it is fine in this case.
bpdulog - That’s the same way I interpretted it too; the client was a research subject. Oh well. And yeah, I agree with cpk, come exam day these things will be worded in the most ambiguous way possible.
I thought it was B as well, but my reasoning was different. Summit was definitely in violation. I thought Overland was also in violation. I thought one had to get APPROVAL in writing prior to accepting gifts from clients. I didn’t think simple disclosure was enough. Is this from CFAI or a study provider?
It’s a Schweser QBank question. Gifts from clients can be accepted as long as they are reported to your supervisor and do not interfere with your objectivity and ability to manage accounts equally.
I chose A correctly, Though I was flopping b/w A and B. all reasoning above went into what I was thinking. I finally came to my own conclusion that “client” did not mean target of research, and that just disclosing in writing would be enough. I was definitely not 100% positive in my answer, but there will always be those answers that I pick just b/c I’m only 51% sure that one is correct.
What a weird question. How would a *firm* be in violation? (honest question) I also don’t see the confusion for the Overland – there is no mention whatsoever what the firm or Kim Scott does.
if the firm lists that they follow CFAI guidelines, then i guess ‘it’ would be in violation but really its the analyst IMO but procedures need to be in place for disclosure, which seems to be lacking at summit. that would be a good company to work for!
Agreed… I would have answered C.
So to finalize: 1) Client gives you a gift, not expected to create conflict of interest Result: Only need to disclose in writing to employer 2) Client gives you a gift, possibility for conflict of interest Result: Disclose plus WRITTEN permission 3) Research subject gives you a gift Result: Disclose plus WRITTEN permission
The primative construction of the second part of the question turns it into complete BS. If you compare it to CFAI text you’ll see what I mean. I find that QBank has plenty junk like this.
Can you elaborate ruins? Which parts in CFAI do you think better address dilemmas like these? Thanks
It seems as though the person who wrote that question was confused about the material. The question appears to be a hybrid between a scenario concerning “Independence & Objectivity” and another scenario related to “Duties to Employers”. If we suggest that a violation has or has not occurred based on the rugged details presented, we will be in violation of the standard pertaining to “Reasonable & Adequate Basis”. Hhha!
ruins Wrote: ------------------------------------------------------- > It seems as though the person who wrote that > question was confused about the material. The > question appears to be a hybrid between a scenario > concerning “Independence & Objectivity” and > another scenario related to “Duties to Employers”. > > > If we suggest that a violation has or has not > occurred based on the rugged details presented, we > will be in violation of the standard pertaining to > “Reasonable & Adequate Basis”. Hhha! I like your line of thought!
muffin09 Wrote: ------------------------------------------------------- > So to finalize: > > 1) Client gives you a gift, not expected to create > conflict of interest > > Result: Only need to disclose in writing to > employer > > 2) Client gives you a gift, possibility for > conflict of interest > > Result: Disclose plus WRITTEN permission > > 3) Research subject gives you a gift > > Result: Disclose plus WRITTEN permission I dont think you can accept a gift that would have the possiblity in creating a conflict of interest even if you get approval. If you do, both you and supervisor are in violation of CFA rules. Can you accept a gift from a research subject… ever?