nj, trust me on this, it’s abundantly clear that is a violation of loyalty to the pension plan participants.
Buckhead Wrote: ------------------------------------------------------- > nj, trust me on this, it’s abundantly clear that > is a violation of loyalty to the pension plan > participants. im with you. It kind of cracks me up that I went through this whole crazy logic exercise because i thought they were trying to throw me off. -1 for me.
This type of question has come up soooo many times in past exams and practice (schweser) exams. If the client (in this case, the beneficiaries are the clients), acknowledges the higher execution costs and is alright with it, it’s not a violation. There wasn’t even a second thought on this one. I’ve been burned too many times in the past by saying a violation.
proofer2 Wrote: ------------------------------------------------------- > This type of question has come up soooo many times > in past exams and practice (schweser) exams. If > the client (in this case, the beneficiaries are > the clients), acknowledges the higher execution > costs and is alright with it, it’s not a > violation. There wasn’t even a second thought on > this one. I’ve been burned too many times in the > past by saying a violation. I agree!! But They have me convinced that im wrong! We will never know!
Said “no violation” because the client was aware. I would think the investment committee is the client? on conference, there is 100% no violation. They put “5-star” hotel to trick us. They didn’t give any info on who paid for the hotel. They didn’t say there was anything lavish or not customary associated with the trips.
proofer2 Wrote: ------------------------------------------------------- > This type of question has come up soooo many times > in past exams and practice (schweser) exams. If > the client (in this case, the beneficiaries are > the clients), acknowledges the higher execution > costs and is alright with it, it’s not a > violation. There wasn’t even a second thought on > this one. I’ve been burned too many times in the > past by saying a violation. Exactly my point. I always get burned in practice questions putting violation but keep reading the same answer that “must agree with client directed brokerage”. I used to work for a consulting company and we strictly worked with the investment comittee, we dont send out surveys to plan participants. CFAI tried to trick people by adding that bit on widows and orphans so people subconsciously felt more sorry, they are tricky… but its client directed. Dont get confused when the PM gets a benefit and the client doestn get best execution but client still agrees with PM, in that case even with agreement and disclosure doesnt substitutue the fact that the PM is wrong, but with client directed brokerage, as long as PM notifies them that they arent getting best execution, that is his only duty
i think you’re confusing with prior cases where the client agrees to best execution. In this case it was a bunch of committee members that were conflicted. what about the beneficiaries??? WHAT ABOUT THE BENEFICIARIES!!! was definitely a violation.
jmychasi Wrote: ------------------------------------------------------- > i think you’re confusing with prior cases where > the client agrees to best execution. In this case > it was a bunch of committee members that were > conflicted. > > what about the beneficiaries??? WHAT ABOUT THE > BENEFICIARIES!!! > > was definitely a violation. i also put violation. but the part i struggled with was, why was it a violation? because it was not best execution or because the committee member profited personally from it? if we are concerned with what’s best for the beneficiaries, shouldn’t we be worried about best execution or above avg research? i ended up going with because the committee profited from it… this was the one ethics question that i struggled with for a while.
think of it like this… if you had two options from different investment managers: 1) investment manager 1: best execution 2) investment manager 2: higher brokerage, but hey its okay, the decision makers are getting invites to 5 star resorts so your money is well spent. come on now!!! the investmetn committee should get slapped in the face with a wet dying beaver. clearly a violation.
For Clarity::: I thought the info said that the beneficiaries were ‘aware of the relationship’ between the broker and the pension fund, but it didn’t indicate that they were aware of the fact that they weren’t getting best execution. agree with the ‘violation’ camp
The key is whether the CFAI gods thought that the client was the Board or the beneficiaries. If the former, no violation. If the latter, violation. I put no violation because the “client” was the Board which is empowered to act on behalf of the beneficiaries.
Scooter you are right, except that once you see the words “pension fund”, you know the client is the beneficiaries and not the board. In this case the client was the beneficiaries.
…by the way…It was a Foundation…and not a Pension Trust…
No faaltu, if you read the question carefully, the board was employed by some foundation but they were the investment committee of the foundations pension trust. It clearly stated that the manager was investing the foundations “pension assets”.
The beneficiaries were aware, no violation. They know they are not getting best execution and they know the relationship.
Yes, I felt the same way. Client direction takes precedence over best execution so it was OK.