Fair Dealing ??

Crenshaw LLC is a full-service investment firm that has institutional clients, high-wealth individual clients, and general individual clients. It generates most of its revenues by giving premium services to its institutional clientele. The firm has just completed an extensive research report on a new company in the high-tech sector, recommending the firm with a “strong buy.” After carefully reviewing the records of all of three types of clients, it was determined that this high-tech company is not suitable for the needs of any of the general individual clients. Crenshaw issues a research report on the new company, first to its institutional clients as part of the premium service it offers them and, several days later, it issues the same research report to its high-wealth individual clients and the general individual clients. Which of the following best describes the actions taken by Crenshaw? a. The actions violate CFA Institute Standards because all of Crenshaw’s clients were not treated fairly. b. The actions violate CFA Institute Standards because Crenshaw gave preferential treatment to its institutional clients over the high-wealth individual clients. c. The actions did not violate CFA Institute Standards. d. The actions violate CFA Institute Standards because the general individual clients should not have received the research report of the new company because this stock was not suitable for them. - Dinesh S

Its either A or B. I say B because it was only the high wealth individual clients who were treated unfairly.

It clearly states that 1. Premium level customers are paying a price for the extra service they get, which is obviously known to all other clientele. 2. By virtue of charging the clientele extra, they CAN get preferential treatment over other customers. Based on this, I would go with C. No Violation. Dinesh, is that the answer? Please let us know!

No question- institutional clients and high-wealth individual should have been notified at the same time- fair treatment no matter that institutional clients pay for premium service. That makes the answer B. On the other side- why is the information disseminated to the general clients, which were already determined not to be suitable for that investment (violating Suitability)

I agree with alpenchev in both regards. Although institutional clients receive the premium service, it seems the high-wealth individuals would be disadvantaged by the late notification of the recommendation. I also thought Crenshaw violated the suitability standard but perhaps this wasn’t the BEST answer choice.

Am with cpk123. I would expect the institutional investors to recieve the premium service they paid for and I think it would be “Unfair Dealing” on them if information is disseminated to everyone same time. Dinesh what do u say?

My answer is A. Although there might be different fees for different services provided,in this type of situation everyone has to receive info at same time. The institutional clientele will receive greater benefit for what they are charged,but not in situations like this. I will wait for Dinesh’s comments.

Lets guess B…

I go with B as well. Dinesh can you supply us with the answer!

I go with C A & B are essentially the same thing…which usually means neither can be correct.

I would go with C as well. Dinesh ji…can you supply us with the answer?

Whats the answer to this problem?

Sorry for the delay, The correct ans to this question is B. So most of you are correct… - Dinesh S

I’m going with B The question only mentions general individual clients as not suitable for the information. They should provide the information to both the high net clients and institutional clients in a timely manner. If they had provided to institutional clients first and immediately after that (ie not 7days) would this be a violation?? cheers,

Can someone explain a bit more about Premium services and the Duties to Client. I seem not to understand it, especially w.r.t above problem. Thanks

ok, just to twist this around… Under what circumstances would the member be allowed to give biased/partial services to their clients?? this is a easy one now… no options for this :slight_smile: - Dinesh S

i guess when a price is paid for the preferential treatment - premium service right?

Bingo!! now go ahead and re-read the question … “premium services to its institutional clientele” is what confused me to click NO VIOLATION. - Dinesh S

“It generates most of its revenues by giving premium services to its institutional clientele” Are you saying this doesn’t imply - paid for the service on this particular research, but instead, it was just a side comment in the question?

webtwister1, there is a relevant example in the free Ethics text from CFAI, #6 in Fair Dealing Section. In short, the analyst issued report to all clients then called the 3 biggest to discuss in detail. The explanation says that as long as he e-mailed everyone first, it’s OK to call the premium service clients. But he would have violated if he didn’t disseminate to everyone first. The duty is to ensure that all clients have an equal opportunity to act, meaning inform all (if suitable). The premium service may include providing more details, phone calls, meetings, etc afterwards.