How should one treat family member accounts that are client accounts in which a member has a beneficial interest? Should they be treated like any other client account and thus not be disadvantaged, even though the client has a beneficial interest in them?
No, IMHO they cannot be treated like any other client account. As there is a beneficial interest there should be accorded differential treatment.
I agree with arakhanna
This one is as clear as snow. You can not treat them like every other account.
Disagree. The concusions of arakhanna, Sam24, and DanLieb are wrong. You cannot negatively affect or disadvantage your family member’s account because the family member is still a client. With regards to Standard IV(B) Priority of Transactions, take a look at the following example adopted from Schweser study notes: VI.B Example A portfolio manager manages an account established by his parents. He first allocates IPO shares to all other clients and waits until afterwards to purchase them for his parents’ account. He does this so that no one can accuse him of favoring his parents. Comment: He has breached his duty to his parents by treating them differently from his other accounts simply because of the family relationship. As fee-paying clients, his parents are entitled to the same treatment as any other client of the firm. If he has beneficial ownership in the account however, and the firm has pre-clearance and reporting requirements for personal transactions, he may have to pre-clear the trades and report the transactions to his employer. This topic also relates to Standard III(B) Fair dealing: Members must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities. Again, if they’re clients- regardless of whether they’re related to you- you must deal fairly and objectively.
I agree with cjones; you must treat the family members just like any fee-paying client. That was precisely the example that I remembered when I looked at the question.
The Key is this sentence: "If he has beneficial ownership in the account however, and the firm has pre-clearance and reporting requirements for personal transactions, he may have to pre-clear the trades and report the transactions to his employer. " I presume that the parents do not have a beneficial relationship. However a child/spouse does. This question is somehwere in Passmaster.
Are we assuming that client in the last portion of the example is in reference to the account manager? “…even though the client has a beneficial interest in them?” If so, I agree with DanLieb and the key phrase being: "If he has beneficial ownership in the account however, and the firm has pre-clearance and reporting requirements for personal transactions, he may have to pre-clear the trades and report the transactions to his employer. " If not, I believe family members should be treated like any other client.
Straight from the curriculum: http://www.cfapubs.org/doi/pdf/10.2469/cpb.v2007.n1.6001 (page 95; end of 2nd to last paragraph) In the absence of preclearance or reporting requirements, accounts of clients that are family members should be treated like any other firm account. The only time a member would be in danger of violation here is if (1) he had beneficial ownership and was subject to preclearance or reporting requirements, and (2) he acted on the behalf of the family account without receiving prior-approval. If the exam question mentions nothing regarding preclearance or reporting requirements, you should presume that treating the accounts of family members who are clients any differently from all other client accounts is a violation of the standard.
i think the client would be treated fairly, but the account would be moved to a different trader/analyst. the member for sure cannot continue working on this account, but as others have noted, they still are clients and should be treated fairly.
Stalla page 1-39 abbreviated to make my typing easier Cali trades for her husbands account and for her parents’ account before trading shares for the firm. Both accounts are fee-paying. Analysis: The prohibition against trading ahead for personal accounts extends to immediate family members. In this case, Cali violates the CaS by trading for her husband’s account prior to trading for the firm because spouses are considered immediate family members. She did not violate the CaS by trading for her parents’ account … [parents are considered like other clients]. If this is on the exam in Dec, I am going with spouse = violation ; parents = not a violation. Kids at home = violation / kids grown up and gone = not a violation
I guess Stalla over did the question… Infact trading for the firm before her husband would be another violation… for not treating a fee paying client properly… Based on last June exam actual CFA questions are not going to be this subjective…
Family Members that are fee-paying clients cannot be disadvantaged in any way and should be treated as any other clients. This is a very common mis-understanding that students develop about this topic, which is why it is often tested on the exam. What you need to understand is that as long as you treat family acounts the same as other clients and do not unfairly provide them an advantage over the others, you should be OK. Refer to Finance-Grid study tutorials on the topic, or Schweser or Analyst Notes and upon careful review you will realize that you should treat family accounts the same as other client accounts in priority of transactions. Sabdezar Ilahi,CFA