Ethics

Jim Crockett is a portfolio manager for Miami Advisors and reports to Vicki Tubbs, the Chief Investment Officer. Miami has developed a proprietary model that has been thoroughly researched and is known throughout the industry as the Miami model. The model is purely quantitative and takes a given set of client characteristics and universe of potential securities and forms a portfolio for the investor. Individual portfolio managers are responsible for selecting securities to fit into the model based on recommendations from the firm’s research department and the managers’ own judgment. Because of the specific nature of the inputs to the model, each manager is responsible for applying the model on his or her own computer. The basic philosophy of the process is thoroughly explained to clients. Crockett does not understand the basics of the model, but feels that since it provides pure quantitative output, he does not need to understand it. However, he misapplies the model for several of his clients. In reviewing some of Crockett’s portfolios, Tubbs finds the errors and points them out to Crockett. Which of the following statements regarding Tubbs and Crockett are TRUE? A) Crockett has violated the Standards by not distinguishing between facts and opinion in presenting an investment recommendation. B) Crockett has violated the Standards by not considering the appropriateness and suitability of the investment for his clients. C) Crockett has violated the Standards by not exercising diligence and thoroughness in making investment recommendations. D) Tubbs has violated the Standards by failing to supervise adequately.

C or D

daj224 Wrote: ------------------------------------------------------- > C or D i think it is C please post real answer

C

yeah it’s C Crockett had a responsibility to know the model well enough to detect the mistakes that could occur from misapplication, so he violated the Standard of diligence and reasonable basis

supersharpshooter Wrote: ------------------------------------------------------- > yeah it’s C > > Crockett had a responsibility to know the model > well enough to detect the mistakes that could > occur from misapplication, so he violated the > Standard of diligence and reasonable basis yeah!!! i haven’t gotten an ethics wrong in over a week!!! : ) back to the books

Yuppi! I answered C before seeing the real answer! Happy to see i’m correct this time, i find ethics questions much more difficult than other parts of the program since there is always a part of subjectivity in your interpretation…