- You e-mail your individual clients as soon as you learn of a change in a prior recommendation; however, you call your institutional clients on the telephone to discuss the changes in detail. 2. You only invite clients with portfolios above $5 million to attend special investment education seminars sponsored by your firm. 3. You notify clients that a prior “buy” recommendation on a company has been changed to a “sell” recommendation before they place orders to purchase shares of the company’s stock. 4. The first time you meet with a new client, you have them sign a consent form acknowledging that they are aware of your firm’s policy that discretionary accounts are given priority over nondiscretionary accounts in the allocation of IPOs. You discuss how they would be affected. Thank you!
#1 - violation. You’re not giving everybody a chance to act on the information. #2 - not a violation. You’re allowed to give extra service, as long as it doesn’t disadvantage your sub-5 clients. Fair does not necessary mean equal. #3 - not a violation of Fair Dealing standard, but it might be a violation of Material Nonpublic Information standard, depending on whether it has been disseminated to all the firm’s clients (not just yours). #4 - violation. All accounts should get the same treatment, discretionary or non. The fact that they signed a consent form doesn’t mitigate the fact that it’s still an unfair policy and an ethical violation.
#1 Not Violation. the change is broadcasted, and you call better clients as they pay more. no problem #2 Not Violation. more service for more pay. no problem #3 Not Violation. duh #4 Violation but not 100% sure on this one
#1 is a violation. The analyst does not give all of his clients the same amount of time to react to the new information. I remember this particular situation from one of the Schweser Videos.
We should make a table with the number of votes for “violation” and “no violation” for each scenario.
Well, some of these are specific examples in the code and standards. Here’s the link, for those who care (or are true nerds). http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2010.n2.1 #1 - is mentioned on page 87. And I was wrong. It is NOT a violation. If you send the e-mail, THEN make the call, then you are just giving different levels of service. If you had made the call BEFORE sending the e-mail, it would be a violation.
I think your example only applies if the analyst email the clients and then “immediately” place orders for his/her personal accounts, not giving sufficient time for the clients to act first, then it would be a violation.
#1 - not a violation - as long as the clients are informed at the same time, CFAI does not specify the method of communication. #2 - not a violation - it’s okay to provide different service levels as long as it’s made aware to all clients. #3 - not a violation - the analyst MUST inform the client of the recent change in recommendation before placing the order. #4 - not a violation? I have not seen a lot of questions in this on allocation of IPOs, although my thinking is that if this is a violation, i would probably have seen a question or an example of this in the curriculum? The fact that it wasn’t explicitly mentioned, perhaps the firms are allowed to make an agreement with their clients to grant them rights to place IPOs on discretionary accounts first? This one i’m not 100% sure. NANA
Still don’t think you were wrong. And I am almost certain, that Andrew Holmes isn’t wrong either. There is a fundamental difference in the example 6, additional services and the problem quoted above. The #1 is a change of an existing recommendation. It requires an action, and by calling after sending out the emails you are giving those clients an advantage. You can’t expect your clients to sit in front of their computers, waiting for your email to arrive, read it and understand it immediately after sending it out. But it would require exactly this in order to comply with the requirement of simultaneous dissemination. Holmes advised to wait for a reasonable amount of time, before starting to call your premium clients. Example 6 refers to a new recommendation, not the change of an existing recommendation. Edit: Just read NANA’s reply. I wish I had not replaced the L1 videos already…
Ok, we are all in agreement. I had Holmes retelling his story about the 19 clients and one big daddy. You shouldn^t trade for any of the clients nor for yourself immediately after hitting the sent button. Picking up the phone and calling big daddy is ok though. So no violation in #1.
Don’t worry. Ethics isn’t going anywhere. You’ve got two more doses of it to go.
That’s why ethics is tricky, you have to have a very clear idea on what they are trying to test you, if you think priority of transaction but they are testing you on fair dealing, you may be interpreting the questions wrong.
People should just listen to me. #1 = no violation. It’s quite obvious there’s no violation.
Why can’t they listen to me? I said no violation!
#1 is a violation. Unless they change the word ‘individual clients’ to ‘ALL clients’. If by emailing / communicating to all clients first before making the calls to specific intitutional investors, then it is not a violation.
^That’s a good point. You sent the e-mail to individuals, then called institutions. I first read it as the e-mail was sent to ALL clients, but institutions also got a phone call.
you got to be kidding me. “You e-mail your individual clients”
institutional clients ARE clients. which means they got the email as well.
No Violation.
But institutional clients _ aren’t _ individuals.
E-mail the people, phone the endowments, trusts, and pensions.
now you’re just stretching trying to make a point.
“client” is a person and/or a company.
I’m not stretching a bit, and I didn’t dispute your contention that “client” is a person and/or a company. The key word in #1 is “individual”, not “client”.
Individual is a person, not a company. That’s a distinction that CFA Institute makes; candidates ignore that at their peril.