Folks, this is a problem on Pg.165 CFAI EOC question # 81.
If a firm receives IPO allocations and you are a portfolio mgr… If you allocate the IPOs to those discretionary accounts that normally participate in IPOs. if oversubscribed, should i exclude wife’s discretionary non-fee-paying account so that I would not be accused of bias when allocating these over subsribed IPOs.
My question is this: I should not allocate to my wife’s account because:
She is a non-fee-paying discretionary account ?
I have a benefical ownership ?
The CFAI answers states that - “I cannot make allcoations to accounts where members and candidates have beneficial interest; client orders must be filled first”
In this case, my wife’s account is also a “client to the firm”. Should I not treat her a/c as same as other client accounts for which this IPO is suitable ? Then My thought process was this: why I should not allocate to her a/c is it that since her a/c is a non-fee-paying discretionary a/c, I could skip her.( Different level of Services for different fee paying clients ).
General question:
Can I skip a client a/c because its a non fee paying discretionary a/c ?
If you have beneficial interest, you have to treat the account as your own. That your wife is a client of the firm takes a back seat to the fact that you have beneficial interest. Don’t allocate shares to her account until after you’ve satisfied all of your other clients’ needs.
Does this violate fair dealing (by not allocating to wife’s account)??
See here - page 81 of Standards of Practice Handbook (10th ed.):
If the issue is oversubscribed, then the issue should be prorated to all subscribers. This action should be taken on a round-lot basis to avoid odd-lot distributions. In addition, if the issue is oversubscribed, members and candidates should forgo any sales to themselves or their immediate families in order to free up additional shares for clients. If the investment professional’s family-member accounts are managed similarly to the accounts of other clients of the firm, however, the family-member accounts should _ not _ be excluded from buying such shares.
treat family like uncles fairly but wife and children who live with you - those accounts are deemed yours in most cases. So tell your wife to chill out.