Ethics Soft Dollar Question

The one in which the Trustees have a relationship with the broker, I thought that was a violation because the true clients of the plan are the participants, trustees have a fiduciary responsibility which they were violationg by accepting 5 star presents and the manager was aware of this…feedback?

It said that the beneficiaries are ok with it + the five star resort was for investment conferences which should make the investment committee better at their jobs and help the beneficiaries – hence no violation. My thought process was that because it was a investment conference it was ok. Im really uncomfortable with the answer feels like a violation – but I also think they try to make you uncomfortable with the right answer.

I answered the same way & felt the same way. But i also made sure that it didn’t say anything about who was paying for their accomodations. Just being invited and going to a conference at a five star resort doesn’t mean you are not paying to get there & paying for your own room. Still unsure, but that was part of my reasoning

I thought violation…I thought the concept was that the benefit was accruing to the committee not the real beneficiaries of the plan

iloveswaps629 Wrote: ------------------------------------------------------- > I thought violation…I thought the concept was > that the benefit was accruing to the committee not > the real beneficiaries of the plan Yes, violation. The client is the beneficiaries, not the committee members. You need to know who your client is.

a flagrant violation

But remember, the beneficiaries were aware of the lack of best execution and the association of the investment committee member with the brokerage firm. How could CFAI possibly say that a manager would violate ethics rules by following the client (beneficiaries in this case) instructions on which broker to use.

the commitee “said” they were aware

Does anyone remember if they said “soft dollars were used to pay for the trip” or just that the executing broker pays for it? If it said soft dollars its a violation – If its not soft dollars – no violation.

This is one of those definitely debatable ones especially depending on how you interpretted some of the the statements. This is why I wish ethics was tested in the AM so you could explain your answers. That would really show who knows the spirit of the rules and who’s just winging it with memorization.

iloveswaps629 Wrote: ------------------------------------------------------- > the commitee “said” they were aware Doesn’t matter. Commissions are the property of the client. The client’s are the beneficiaries, not the committee members.

This was a violation. It didn’t say modest conference so it might be debatable. It said 5 star conference… They tried to make it an extreme situation

thats my point…commitee should not be recieving benefit

Did anyone else notice that this question was about the foundation, THF or something, but yet the vignette referred to plan beneficiaries as if it was about a pension fund… Am I alone here?

saw that too

I don’t see how the port mgr could have said no to the committee. Committee is the voice of plan participants and represents participants in all matters. What’s the alternative for the manager - to say go collect signatures from all plan benifis? That does not happen in real world. It cant. In real world, you are hired by the committee and do what they say wrt admin matters. Another way of looking at it, and I am not sure I am right at all on this, what is the reason to have separate soft $$ standards? There is not much room for illegality here. Yeah, a lot of room for abuse and unethical behavior, but no real laws, are there? So when making investment decisions, you gotta think of beneficiaries first and foremost. Clearly you can’t go propping up company stock on management’s request. But with soft $$, I am not sure we are to look at it the same way. At the end of the day, we are talking about a few bps difference in performance and not actually of taking undue risks with portfolio funds. So it seems to me it was ok in this case to direct the brokerage, but I can very well be wrong on this.

this was absolutely a clear cut violation of duty of loyalty. It’s a slam dunk.

Directed-brokerage is fine if not best execution as long as client is notified wrt this.

Not to mention beneficiaries were low income single moms or something. They wouldn’t understand the arrangement.

violation tho I prob chose the wrong one. I said cos it wasn’t best execution