Ethics Question (Directed Brokerage)

Mei Wong, CFA, executes trades for AMC Asset Management. One of their clients requests all trades be directed to Zeus Securities because Zeus Securities will direct a portion of the commissions to the client. Wong notices Zeus’s prices are slightly worse than prices other dealers are giving her for the same security. If wong continues to execute her client’s trades with Zeus, she would: A) Violate CFA Institute Standard of Professional Conduct related to loyalty, prudence, and care B) Not be in violation of any Standard. Directed brokerage is allowed with certain stipulations. C) Violate CFA Institute Standard of Professional Conduct on independence and objectivity. This is one of the 9 questions I got wrong on the mock exam…the correct answer makes a lot of sense now that I think about it, but it still caught me.

the answer A…as per me…please post the right answer!



Is the correct answer A?

The correct answer is B Because brokerage is an asset of the client and is used to benefit the client, not the manager, such a practice does not violate any duty of loyalty. Read more on page 55 of SPH.

seems like a shady question, imagine you can do some semi-illegal crap if you’re directing trades to certain desk in order to get kick backs one of those questions you can’t overanalyze, just go by the book, and let the common sense thing go