Robert Miguel, CFA, is a portfolio manager for a large investment advisory firm. In appreciation for his impressive portfolio returns last quarter, one of his clients, Kevin, has invited Miguel and his wife to be his guest at his luxury suite for a major league baseball playoff game. Miguel, a baseball fan, accepts the invitation and attends the game. The next day at work, Miguel discusses the outcome of the game with his supervisor but doesn’t mention the fact that he attended the game with a client. According to the CFA institute std. of professional conduct, Miguels actions: A) are in violation of both Standard I(B) independence and Objectivity and Standard I(A) Knowledge of the Law B) are not in violation of both Standard I(B) independence and Objectivity or Standard I(A) Knowledge of the Law C) are in violation of Standard I(B) independence & Objectivity but not Standard I(A) Knowledge of the Law D) are not in violation of Standard I(B) independence and Objectivity but are in violation of Standard I(A) Knowledge of the Law
He did not get employer’s consent before he went to the game with the client. So Independence and objectivity is definitely breached. so it boils down to choice A, or C. Has he violated the “Knowledge of the Law” clause, not sure how to go on that one. Given he is a CFA charterholder, he should have known to go to his supervisor… so I would go with A. CP
I pick C. I don’t see any laws being broken here. Miguel would have been in compliance with Standard I(B) if he’d disclosed the gift to his employer. Standard I: Professionalism (B) Independence and Objectivity “Example 7. Theresa Green manages the portfolio of Ian Knowlden, a client of Tisbury Investments. Green achieves an annual return for Knowlden that is consistently better than that of the benchmark she and the client previously agreed to. As a reward, Knowlden offers Green two tickets to Wimbledon and the use of Knowlden’s flat in London for a week. Green discloses this gift to her supervisor at Tisbury. Comment: Green is in compliance with Standard I(B) because she disclosed the gift from one of her clients. Members and candidates may accept bonuses or gifts from clients so long as they disclose them to their employers, because gifts in a client relationship are deemed less likely to affect a member or candidate’s objectivity and independence than gifts in other situations. Disclosure is required, however, so that supervisors can monitor such situations to guard against employees favoring a gift-giving client to the detriment of other fee-paying clients (such as by allocating a greater proportion of IPO stock to the gift-giving client’s portfolio).”
one of the situations where I come down to two possible answers, over analyze and select the wrong answer… happens to me very often.
2. Kevin Richards is a performance analyst for reliable advisors, a retail investment advisory and consulting firm. Richards who is a level 1 CFA, was hired as part of the firms efforts to attract CFA candiates into citical areas of the firm, such as performance measurement and attribution. Richards supervisor instructs him to reference the firms compliance with GIPS in marketing materials to attract more clients. Which of the following about Richards ability to reference GIPS compliance in marketing materials is FALSE? Reliable must: A) Fully comply with GIPS to make a claim of compliance B) Apply GIPS compliance firmwide and not a specific asset class only C) Claim compliance with GIPS only if it has a compliant performance history of five or more years D) Include all discretionary fee paying accounts in composites based on their investment objectives and or strategies (Footnote: Schweser 2007: Book 6: Sample Exam 1: Afternoon Session: Question 5)
CPK - you are right the answer is A ! But why? it doesn’t make sense. How is there a violation in Standard I(A) knowledge of the law? Standard I(A) states that: Members and Candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities. In the event of conflict, Members and Candidates must comply with the more strict law, rule, or regulation. Members and Candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations.
Choice C GIPS compliance can be claimed from the beginning of the firms’ existence too.
C. “The GIPS standards REQUIRE FIRMS to include all actual fee-paying, discretionary PORTFOLIOS in COMPOSITES defined according to similar strategy and/or investment objective and REQUIRE FIRMS to initially show GIPS-compliant history for a minimum of five (5) years or since inception of the FIRM or COMPOSITE if in existence less than 5 years. After presenting at least 5 years of compliant history, the FIRM MUST add annual performance each year going forward up to ten (10) years, at a minimum.”
In this case of Miguel, since he is a CFA Charterholder, he should have known to go to his boss, was my reasoning. because he did not do that, he violated I(A) (OR HE DID THAT WITH PRIOR KNOWLEDGE, WHICH IS STILL A VIOLATION)
cpk, I also thought it was A. It seems a bit arbitrary how you define knowledge of the law. edit: sorry didn’t see the posts above when I was typing this
lola, that seems to have been the right answer as well… if all ethics questions were so “reasonable” … But I guess from past experience in June, there is a curveball somewhere in CFA-I Land to throw us off base. CP
cpk123 Wrote: ------------------------------------------------------- > Choice C > > GIPS compliance can be claimed from the beginning > of the firms’ existence too. CPK, always beating me to the punch As for the first question, answer A just doesn’t make sense to me. What law is being broken?
hiredguns1 my reasoning: In this case of Miguel, since he is a CFA Charterholder, he should have known to go to his boss, was my reasoning. because he did not do that, he violated I(A) (OR HE DID THAT WITH PRIOR KNOWLEDGE, WHICH IS STILL A VIOLATION)
I still do not get why “C” for the GIPS question is right answer? Isn’t it true that the CFA institute requires at least 5 years of history for the firm to be compliant?
OR From inception of the firm… that is the key clause applicable here.
Yeah, I agree it’s a violation and he should have known better, but it’s only a violation of CFAI Code & Standards. If attending baseball games is actually a violation of some federal, state or municipal law, well I guess it’s time to begin my life as a fugitive. “What I want from each and every one of you is a hard-target search of every gas station, residence, warehouse, farmhouse, henhouse, outhouse and doghouse in that area.” - Deputy Marshal Samuel Gerard
parry, as cpk mentioned above, if the firm has been in existence for less than 5 years, it can claim compliance since inception, and not provide 5-yr compliance data.
hiredguns1, here is knowledge of the law: Members must understand and comply with laws, rules, regulations, and Code and Standards of any authority governing their activities. In the event of a conflict, follow the more strict law, rule, or regulation. Do not knowingly participate or assist in violations, and disassociate from any known violation. Members must know the laws and regulations relating to their professional activities in all countries in which they conduct business. Members must comply with applicable laws and regulations relating to their professional activity. Do not violate Code or Standards even if the activity is otherwise legal. Always adhere to the most strict rules and requirements (law or CFA Institute Standards) that apply. Members should disassociate, or separate themselves, from any ongoing client or employee activity that is illegal or unethical, even if it involves leaving an employer (an extreme case). While a member may confront the involved individual first, he must approach his supervisor or compliance department. Inaction with continued association may be construed as knowing participation.
Another Ethics Question: Tony Robert, CFA, is a port. manager at delta securities. He suspects a colleague who is not a member or candiate, of ongoing activities that while not illegal, violate CFA institute standards. Roberts and the colleague both report to the same managing director at Delta, and are both currently being considered for a promotion to senior portfolio manager. According to the CFA Instutite Standards of PC, all of the following are true EXCEPT that Roberts: A) is required to dissociate from the activities that violate the Code and Standards if they continue B) Is governed by the code and std’s and not local law in this situation C) may need to resign his position with Delta securites in order to fully disociate from the activities D) Must report the suspected violations of the code and std’s first to his supervisor and then to CFA institute
C seems a bit too extreme, so I’ll with that.