Ethics is always tricky. I am still confused when reading the answers: 1. It says “a description using plain language was also not used”. where can they get this judgement? Shao says “an explanation as to how the fees were derived”, how do they know that it is not in plain language? 3. What if the client has other assets enough to meet the liquidity requirement? should it be case by case analysis and not in gerneral “no hedge funds for conservative clients”? 5. where did they get the 2% allocation to the portfolio??? 11. i did not find any sentence in the book saying “obtain permission prior to making a trade”. just they have to disclose the ownership of the shares"??? Any thoughts?
I had the same issue as you with question 3. Someone with liquidity needs shouldn’t invest solely in hedge funds, but most allocation show something like 10% to hedge funds. To me, you can invest 10% in a hedge fund if you have liquidity needs.
#5 - The 2% wasn’t important, it was just that when the block trade was only partially filled, both accounts got a pro rata share based on their asset size. $100k / $5million = 2% $500k/$25million = 2%
same issues on number 3.
that hedge fund liquidity question answer is such BS. He stated he KNEW about the lock up period.
Completely agree on 3. “Shao believes they are appropriate despite their three year lockout provision.” You could argue that either way without more specifics about the liquidity needs of his clients. I hate these types of questions.
Guys how about #5? Does’t he need to disclose the trade allocation policy?
eschizzle Wrote: ------------------------------------------------------- > #5 - The 2% wasn’t important, it was just that > when the block trade was only partially filled, > both accounts got a pro rata share based on their > asset size. > > $100k / $5million = 2% > $500k/$25million = 2% Isn’t it order size? Allocating solely on the basis of asset size is a violation of both Suitability and Fair Dealing (favoring big clients over smaller clients). Is it not? And in that question they didn’t state the order size - leaving you to assume that the suitable order size was in direct proportion to their asset size.
i missed 3 as well as OP mentions. and on 5…i had no idea EACH trade needs to be permission. the only way i can think about is is permission could mean a restricted list, so if not on the list you have “permission”
real world (for me), every trade needs to be submitted for permission…compliance checks to see if it has been traded for 6 days, if so = denied. actually, if a PM trades that stock w/in 6 days after your trade, you could have to pay the difference if the client gets poorer execution. restricted list is more of a sell side/ibank screen (in my experience) edit: the plain language question was crap too as was the liquidity imo
karatekid says : “11. i did not find any sentence in the book saying “obtain permission prior to making a trade”. just they have to disclose the ownership of the shares”??? " On page 124 of CFAI Handbook under VI (b) Priority of Transactions, it specifies Preclearance procedures - indicating permission must be sought.