Ethics Q?

Brian Bellow, a CFA Institute member, is a portfolio manager for Progressive Trust Company. Several friends asked Bellow to review their investment portfolios. On his own time, Bellow examined their portfolios and made several recommendations. He received no monetary compensation from his friends for his investment advice and provided no future investment counsel to them. According to CFA Institute Standards of Professional Conduct, did Bellow violate his duty to Progressive Trust? A) No, because Bellow received no monetary compensation for his services. B) Yes, because he undertook an independent practice that could result in compensation or other benefit to him. C) No, because Bellow provided no ongoing investment advice.

B) Yes, because he undertook an independent practice that could result in compensation or other benefit to him.

Its a tough one. I will go with B too, to be on the safe side (err on the side of caution). Although C also seems ok.

You are absolutely correct. B Yes, because he undertook an independent practice that could result in compensation or other benefit to him. Standard IV(A) does not preclude providing independent services for compensation while still employed; however, notification to the employer is required describing the type of service, the expected duration, and the compensation. Compensation includes more than just monetary benefits. -From a practical standpoint… Does this mean I am in violation of the standards if a good friend is like “hey, can you take a look at these fund offerings in my 401k for me” and I say “Make sure to allocate a portion to fixed income” (with no current or future compensation of any sort involved) unless I go and tell compliance about the conversation?

i don’t know about this… i guess the question doesn’t say he doesn’t receive ANY kind of compensation but it doesn’t say he does either. how do you determine whether something could turn into compensation down the road? i give my friends and family advice (like you described, mcleod) all the time. i don’t think my compliance department would want me to mention it, either.

Exactly, that’s why I thought this was a BS question. I would hope that CFAI would give more clarification, but they seem to like leaving ethics questions up to interpretation.

I would’ve picked B for two reasons…don’t know if they’re valid, but they sorta justify the answer 1. “Several” friends ask him to review the portfolio. So it’s not just a buddy looking for quick advice. 2. Bellow “examines their portfolios” and “makes several recommendations”. This statement implies that he actually took some time out to read through what they currently own, analysed that, he “probably” knew what sort of goals/objectives/risk they had in mind …and then made recommendations. Since this seems like more of a “process” than just a friendly hey-you-should-buy-fixed-income kinda recommendation, it sorta qualifies as a “Service” or “independent practice” which could potentially become permanent, or be compensated, or have some sorta benefit (monetary or otherwise) etc. McLeod: In your personal example McLeod, I guess if it’s just a random friend asking you about something in the conversation, then it shouldn’t need to be reported. just my two cents.

I agree with you folks that “B” is the “right” answer an underscore the need to wear your CFA blinders to filter out the real world. But as a practical matter - I’ll be damned if holding the charter will keep me from using " my free time" in the manner I see fit and this question is so bereft of specificity in terms of context that it is impossible to answer absolutely (in real world). Don’t know what examine means but if someone(s) important to me puts their portfolio and asks me for input/thoughts I would give it them and feel good about it!