I remember it was a Hot IPO which I imply as oversuscribed. Where non-fee paying client was excluded in the allocation.
if it was a hot IPO there should be less discussion I would assume but maybe it was because I really don’t recall now haha.
I understood that father was his client. So, he should be treated as any client. (Not)-paying some fees does not mean there is not any other compensation. And being father-son (biologically related) does not mean any automatic beneficial interest.
pfcfaataf:- I donot think that there was something in question which implied that father was client.
If my memory didnt fail me, there were some wordings that implied it was an oversuscribed thingy…resorted me to omit the father.
all fee paying accouns are treated equally . that is moral of the story
yes this is exactly the problem with that question. Who was really his client? The question said something like that “he manages this and this and that…” or something like that. It didnt say this one is his client, this one is not his client.
It was not a “hot” IPO, or an oversubscribed IPO. It simply dealt with block trade allocation. The question, as i read it, implied that her father was a client at the firm. I could have read it wrong, but that’s what i took from it.
““The question, as i read it, implied that her father was a client at the firm”” What i can remember from top of my head, is that i spent some time in thinking if the father was client but there was nothing in question implying that.
yourstruly Wrote: ------------------------------------------------------- > What i can remember from top of my head, is that i > spent some time in thinking if the father was > client but there was nothing in question implying > that. You very well could be correct, different people can read questions different ways.
This is turning into “telephone” I think it read that it was her baby daddy’s account and she was the sugar momma who was going to trade a mutual fund for a pension fund and then take a hot IPO in the afternoon…or something like that. 
I can’t remember the specifics, but I put allocate the order to all fee paying clients first. Whether I got it right or wrong, I’m not worried about. If you prepare really well for ethics, you’ll get about 70% easily, and then out of the remaining you’re lucky to get 10-15%, because it’s all stuff out of left field.
paging cfacowtown to red courtesy phone, dispute over question
I heard the bat-phone. The SPH is very vague on this topic but here is my personal reasoning. We know already that: “Family accounts that are client accounts should be treated like any other firm account and should neither be given special treatment nor be disadvantaged because of an existing family relationship with the member or candidate.” The understanding here is that family is treated the same as clients. But unless all clients are paying zero fees, then this seems kind of contradictory? This seems like “special treatment” to me. At this point, through association, the family is gaining benefits not available to regular clients. But the question apparently didn’t state purely family accounts, implying that other clients also get a zero-fee opportunity, though we don’t know why. What makes it even more important is when we talk about share allocation, especially in something like an hot IPO. In this case, a documented procedure for allocation is usually disseminated to clients far before the distribution and is aimed at achieving the fairest results possible. So we are left with a simple conflict of standards. Duty to Clients vs Conflicts of Interest and possibly Fairness, Loyalty, Care. I can’t remember any of the answers, but my justification at the time was this. As long as allocation is fair to all participants, then the family/zero paying clients should receive the same allocation. This is for a number of reasons: (A) If a firm is waiving fees it is either to provide additional employee benefits (indirectly to his family) or possibly because those clients are that valuable, bring in that much business…etc (B) Assuming these are not self-managed portfolios, we cannot make exceptions to our duty of loyalty to clients, regardless of the fee structure (assuming it is fair). Assuming the employer has agreed to these fee structures and they are not individually biased, they should be grouped in as a normal client. © Although it may seem unfair to those who do pay fees, ignoring the ones who don’t pay fees (potentially significant clients) will likely drive the business elsewhere. So although showing favoritism to the clients in terms of fees is ok (baffling I know), distribution of securities and other services is not. Its a fine line for sure, and you can argue it either way. Regardless my justification is the duty to clients. Personally, it is to little information to make an informed decision so its almost 90% speculation. Individual circumstances make all the difference in this type of question. So as long as it is the pro-rata (fair allocation), and you have some sort of advisory relationship with these zero-payers, then they are clients and thus, the standard applies.
Here’s all the relevant information I could find. Sorry if it’s redundant. Page 55 of Vol1 under Fair Dealing says, “In addition, if the issue is oversubscribed, members and candidates should forgo any sales to themselves or their immediate families to free up additional shares for clients.” Page 95 of Vol1 under Priority of Transactions, “Family accounts that are client accounts should be treated like any other firm account and should neither be given special treatment nor be disadvantaged because of an existing family relationship with the member or candidate.” Page 98 of Vol1 under Priority of Transactions there’s a question (Erin Toffler) about dealing with family and it says “As fee-paying clients of Esposito Investments, Toffler’s parents are entitled to the same treatment as other clients of the firm.” SchweserNotes question #41 (answer on page 93) in the Ethics section also says fee-paying: “If a family members is a fee-paying client, the member or candidate should treat them like any other client, not giving any advantage or disadvantage to their accounts. The fact that a member or candidate has a beneficial interest in a client account does not preclude treating it like any other fee-paying account.”
His father is not a client so there might be conflict of interest there, no? I did not include the father in my answer.
His father 100% IS a client, not a fee paying one, I agree with the rest of the forum, father should get shares equally.
Interisting to see people divided almost equally on both sides. I thought that the question did not indicate that the father was a client. The father also did not pay. The block trade was also not enough. So, I opted not to allocate to the father. Check out the CFAI Book 1, pg 119, Q.33 (falls under practice problem for reading 2). A somewhat similar question.
I am with renald and others on this… I pondered over this and this is how I resolved it for me. Let me try to see the difference between a “fee-paying family member client” and “managed non-fee paying familiy member acct” in otherwise similar accts in all respectes. The former should be treated in all fairness, on par with a reg client whereas… So I chose “NOT” a reg client acct.