Ethics Soft Dollar Question

I am not sure if this one is clear cut. The client is not the beneficiaries. It is the foundation (an institution). If the committee members are the ones who choose investments and sign off on the IPS, they are the client. It’s the same with a Trust, the trustees are the client, not the grantor or beneficiaries (unless the trustee is the grantor and/or beneficiary - as is the case with a Revocable Trust). If the committe directs brokerage, then they can be the receipient of soft-dollar benefits. Bottom line - we do not know what CFAI’s stance is here (as is the case for other ethics questions).

oh, sh1t, I forgot this was a foundation. that’s right - there are no benefis here. you can jam widows and orphans with higher costs.

" CLIENT DIRECTED BROKERAGE" As long as they are aware that they are not getting best execution ( which case said was disclosed" than manager has no choice but to follow client directed brokerage instructions. i rememebr the day before I was doing practice exam with schweser and this questions stumped me because it was similar in nature where they were not getting best execution and price and i said violation, but answer said with client directed brokerage, our only duty is to inform the client that they will not be getting best execution and if they were stil ok with their client directed choice that we had to obey their command" therefore no violation in this case. loyalty has nothing to do with clients, loyalty only pertains to you and employer.

IH8FSA Wrote: ------------------------------------------------------- > " CLIENT DIRECTED BROKERAGE" > > As long as they are aware that they are not > getting best execution ( which case said was > disclosed" than manager has no choice but to > follow client directed brokerage instructions. > > i rememebr the day before I was doing practice > exam with schweser and this questions stumped me > because it was similar in nature where they were > not getting best execution and price and i said > violation, but answer said with client directed > brokerage, our only duty is to inform the client > that they will not be getting best execution and > if they were stil ok with their client directed > choice that we had to obey their command" > therefore no violation in this case. > > loyalty has nothing to do with clients, loyalty > only pertains to you and employer. This is completly incorrect, you are to have loyalty to the beneficiary, this was the pensioners, not the Client. The client was f*cking the pension by not taking best execution to get free trips, and you were going along with it.

I choose violation, the one with no best execution anyone choose personal benefit?

AFJunkie is correct. The key here was that this was the committee of a pension fund. For a pension fund the loyalty is to the plan participants, not the investment committee. The manager is therefor complicit in de facto theft from the fund by associating themselves with this arrangement.

lol the thing specifically said “X does not provide best execution” the answer is violation b/c they didn’t seek best execution for clients

not entirely correct YP. There are arrangements allowable were the manager can not use best execution (client directed brokerage). The key here is that the committee here is not the ultimate client, and therefor don’t have the right to direct the manager to use inferior brokerage. One of the answers was “violation because he doesn’t seek best execution” or something, and that was not the correct answer.

^lol nope. Edit: in response to Y_P

Guys, the question said the participants were aware that they were not getting best exectution and not only that…the question said they agreed.

The participants being aware they are being robbed does not excuse the manager from his duty of loyalty. This is clearly an unethical arrangement.

The fact that the beneficiaries are AWARE and AGREE does not mean that they directed it! They need to be the ones directing the brokerage, otherwise it is a violation.

but this is a foundation, arent the clients the ones who started the foundation… i.e investment comittee. this is not a pension plan people

no, the question specifically stated the manager was running the pension fund of the foundation. Weird, I know, but that is what it said.

hi. sorry, i’m a total lurker on this site and rarely ever post, but i agree with Buckhead. i only caught it the third time i read through it, but the title of the paragraph said “HLF Foundation” but inside the paragraph it said managing for the pension plan of the foundation. hence, needs to manage for the beneficiaries of the plan. plus, i sorta looked at it as though how in the world do you really explain to the beneficiaries, and get their okay, that they’re not getting best execution? doesn’t matter if the investment committee said, they’re not committing to their fiduciary duty.

Buckhead Wrote: ------------------------------------------------------- > this was absolutely a clear cut violation of duty > of loyalty. It’s a slam dunk. Buckhead Lakers or Magic?

magic hopefully!

For me it works in this way…“the rule is that everybody gets into your house with the shoes on, if a guy is poor and dont have shoes…fuck it!! if i let him in, it is a violation” It is the same way for these kind of questions…It was a violation…the same case with the question regarding trade allocation…

He has to get it in writing from the client BUT he didn’t do that. He just listened to the trustees. Per CFA book.

I wrote no violation. My thought process was that they were aware of it and that the beneficiaries were getting the benefit of the investment committee members going to the conferences and becoming better investors. However, I am not comfortable with my logic. I now think its a violation. I dont think we are going to get clarity on this one.