Ethics - Question of the day

Guy Todd, CFA, is an analyst for RowenTree Investments. Todd reports to John McNies, director of Sales. Todd is working on the research report on a new startup EthicsMess. Todd has come up with a comprehensive report, with placing a “strong buy” on the stock, and was diligent in checking his resources. Right before the report is finalized, McNies goes to Todd’s office and requests that he omit a few items from the report, most of them a bit “negative” and could temper investors interest for EthicsMess. In order to comply with Code and Standards, what is Todd’s best course of action? A. Modify the research report, as requested, but change his rating to “buy” B. Modify the report, and show to McNies how the information can be rewritten in a way to identify the risks without putting the emphasis on the risks C. Refuse the request, and report McNies to the firm’s compliance officer D. Go along, but ask McNies to add his name to the report, showing he participated in the preparation of the report.


The best course would be to remove his own name from the report. Due to the fact that there is no such possibility I would choose C. Although the requested changes seem to be minor I think that the fire wall function should be maintained.

obviously C


Standard 1B Independance & Objectivity could be mentioned

I would say the answer is B.

Map don’t you get frightened to loose the fire wall between sales and research? That would be a standard violation…

map1, hide some facts from clients due to pressure? Or soften them a little so clients won’t notice?

cfaisok Wrote: ------------------------------------------------------- > Standard 1B Independance & Objectivity > > could be mentioned I agree. That’s why C makes sense!

wow, i love this community…

And the Ethics master of the day title goes to - (drumroll) - map1! Map1, could you please share your reasoning. p.s. i will f/u with the “official” explanation soon

Nope. It has nothing to do with the exchange of information between the sales department and the analyst. Sales asked for omitting some potentially negative comments in the report, the analyst shows how to modify the report, which had a “strong buy” recommendation anyway, presenting the risk in a way that does not over-emphasize it.

Great. That’s exactly the explanation that i have. The negative information is still included, just not emphasized as strong as in the original draft. C is wrong because Todd did not attempt to first resolve the matter through his direct supervisor.

I understand that these changes are minor, but as we know there has to be a fire wall function. A sales director is not the best one to give advices for a researcher. Huh? A research should be written in a professional manner. And this includes independance and objectivity… If a sales man is involved, where is independance and objectivity? I guess that this is not an official CFA question… Is it Schweser or Stalla? :wink:

@FisherSU the supervisor answer is missing, ok. But i am still not convinced (see my points above)

First, the sales director is not giving any kind of advice. He is asking for a change of some small (“bit”) potentially negative remarks in the report. The analyst is not a subordinate of the sales director, there is no issue related with independence and/or objectivity, since the analyst is not forced in any way to do the change. Second, the analyst, with due diligence, prepared the “strong buy” recommendation, and is not under any type of pressure from the sales director: there is his supervisor and the compliance/legal officer in line to settle whatever divergences could ever appear. Third, there is nothing illegal in reformulating, so that the risks remains mentioned, but it is not overemphasized. The report has to be prepared professionally, and the analyst does it with due diligence. cfaisok, I understand that you want to get the right answer each time (I would love to have the right answer all the time), but when it doesn’t happen, learn from it, don’t blame third party providers.

cfaisok, with all due respect, we are supposed to know what the proper course of action in resolving any potential issues is. It is not to run and cry to your compliance officer, but to see your supervisor with any concerns you might have. Is this common sense to me only, or would you ppl agree with this line of thinking? Provider is Schweser, and source is book 7, so don’t stress over it, book 7 is composed of most difficult questions out there.

thanks for your opinion map I know that i have a critic opinion about prep providers… (i have seen to many low quality questions…) --> page 26, cfai-book third bullit point, read it carefully. I conclude that B is wrong and that the prepprovider isn’t in compliance with the curriculum. this doesn’t seem to be a cfai question…

Schweser, ok. I know now what i have to know. @FisherSU as i said, supervisor is first choice. second choice remove your name from report third choice: go and report to compliance officer because schweser question doesn’t offer other solutions weak choice: violate standard and choose B.