- According to the Standards of Practice Handbook, a member who is an investment manager is least likely to breach his duty to clients by: A. disclosing confidential client information to the CFA Institute Professional Conduct Program. B. using client brokerage to purchase goods or services that are used in the investment decision-making process. C. consistently supporting management’s recommendations by voting with management on proxies related to non-routine governance issues. Answer: B. I understand that B is correct, but isn’t A correct also? Aren’t the standards pretty clear that you can treat the Professional Conduct Program as an extension of yourself and provide them with confidential client information?
Yes, I was also curious. This question from Q-bank stated that you should disclose your clients’ confidential information to CFAI PCP. Dan Jeffries is a portfolio manager who is being sued by one of his clients for inappropriate investment advice. The Professional Conduct Program of CFA Institute is investigating Jeffries for the same offense. Jeffries settles the lawsuit with the client while the Professional Conduct Program investigation is ongoing. When the Professional Conduct Program staff questions Jeffries about the problematic investment advice, Jeffries claims he cannot talk about it because doing so would violate the confidentiality of his client. Jeffries has: A) not violated the Standards by executing the settlement agreement or by refusing to talk about the case with the Professional Conduct Program. B) violated the Standards by executing the settlement agreement, but not by refusing to talk about the case with the Professional Conduct Program. C) violated the Standards by refusing to talk about the case with the Professional Conduct Program, but not by executing the settlement agreement. Your answer: A was incorrect. The correct answer was C) violated the Standards by refusing to talk about the case with the Professional Conduct Program, but not by executing the settlement agreement. Because the Professional Conduct Program will maintain client confidentiality, Standard III(E) Preservation of Confidentiality does not permit members to refuse to cooperate with a PCP investigation because of confidentiality concerns. The Standards do not require members to delay dealing with related legal matters while a PCP investigation is in progress.
I can’t figure this out either. Is it because they don’t mention that an investigation is ongoing? If they’re being that picky, B doesn’t state that the client brokerage is used for the benefit of that client either. From CFA Code and Standards Page 79-80: Professional Conduct Investigations by CFA Institute. The requirements of Standard III(E) are not intended to prevent members and candidates from cooperating with an investigation by CFA Institute’s Professional Conduct Program (PCP). When permissible under applicable law, members and candidates shall consider the PCP an extension of themselves when requested to provide information about a client in support of a PCP investigation into their own conduct. Members and candidates are encouraged to cooperate with investigations into the conduct of others. Any information turned over to the PCP is kept in the strictest confidence. Members and candidates will not be considered in violation of this standard by forwarding confidential information to the PCP. Page 55 An investment manager often has discretion over the selection of brokers executing transactions. Conflicts arise when an investment manager uses client brokerage to purchase research services that benefit the investment manager, a practice commonly called “soft dollars” or “soft commissions.” Whenever a manager uses client brokerage to purchase goods or services that do not benefit the client, the manager should disclose to clients the method or policies followed by the manager in addressing the potential conflict. A manager who pays a higher commission than he or she would normally pay to purchase goods or services, without corresponding benefit to the client, violates the duty of loyalty to the client. From time to time, a manager’s client will direct the manager to use the client’s brokerage to purchase goods or services for the client, a practice that is commonly called “directed brokerage.” Because brokerage is an asset of the client and is used to benefit that client, not the manager, such practice does not violate any duty of loyalty. In such situations, the manager is obligated to seek best price and execution and be assured by the client that the goods or services purchased with brokerage will benefit the account beneficiaries and the manager should disclose to client that they may not be getting best execution.
I got this one correct but I think the question is missing a lot of facts to come up with the explanation the CFAI did: Eric Pantoja is enrolled as a candidate in the CFA examination program. He works as an assistant for Chehalis Investments (CI). Pantoja sees CI’s purchase list and purchases several of the recommended stocks. Pantoja least likely violates the CFA Institute Standard relating to: A. Loyalty to Employer. B. Priority of Transactions. C. Diligence and Reasonable Care. Explanation: Pantoja least likely violates the Standard relating to Diligence and Reasonable Care because he is taking investment actions on his own behalf rather than on behalf of clients. His actions violate the Standards relating to Priority of Transactions (he trades ahead of his employer and its clients), Loyalty to Employer (his actions cause harm to his employer), and Misconduct (his actions reflect adversely on his professional integrity).
I was thinking maybe it could be the case that your in a country with strict confidentiality laws, therefore making B the better choice, but I’m not sure… I got this one wrong too
> Answer: B. > > I understand that B is correct, but isn’t A > correct also? Aren’t the standards pretty clear > that you can treat the Professional Conduct > Program as an extension of yourself and provide > them with confidential client information? Of course not !!! In most countries there are very strict laws about confidentiality. You must adhere to those. Why should local law allow you to share information with a private organisation?
Concurred with Bacaladitos. Refer to CFAI text page 67. It says that member or candidates are required to preserve confidentially if laws says so even though it concern illegal activities.
Yea I alwayz had this doubt… Standard III(E)-Preservation of Confidentiality. The standard states members must keep client info confidential except if it concerns illegal activities on part of the client… but it also states - “if applicable law requires members to maintain confidentiality, even if the information concerns illegal activities on part of the client, members should not disclose such information” I really couldn’t get this…but anyway if it says so then it is so…
I got this one right, too, but the question was far from clear. To me, answer B, Priority of Transactions, could have also been correct. That’s based on the assumption that the purchase list is a periodic list of stocks the company recommends to its clients – not a list for a given trading day that might involve front running. The question stem doesn’t mention when those stocks are purchased, either. I had a problem with CFAI mock question 15 (afternoon session) involving an analyst who receives compensation for referring clients to his employer’s brokerage and financial planning divisions. He doesn’t mention his referral arrangement to the clients and the answer stem suggests this is a conflict of interest. I guess my thinking here is that clients understand that the analyst is biased in favor of his current employer and that no disclosure should be required. I guess I was mistaken. job71188 Wrote: ------------------------------------------------------- > I got this one correct but I think the question is > missing a lot of facts to come up with the > explanation the CFAI did: > > Eric Pantoja is enrolled as a candidate in the CFA > examination program. He works as > an assistant for Chehalis Investments (CI). > Pantoja sees CI’s purchase list and > purchases several of the recommended stocks. > Pantoja least likely violates the CFA > Institute Standard relating to: > A. Loyalty to Employer. > B. Priority of Transactions. > C. Diligence and Reasonable Care. > > Explanation: > Pantoja least likely violates the Standard > relating to Diligence and Reasonable Care > because he is taking investment actions on his own > behalf rather than on behalf of > clients. His actions violate the Standards > relating to Priority of Transactions (he > trades ahead of his employer and its clients), > Loyalty to Employer (his actions cause > harm to his employer), and Misconduct (his actions > reflect adversely on his > professional integrity).