Paladin shippers case ethics

‘’…Robinson knew Carlyle from his previous days in the research department. Based only on Carlyle’s recommendation, Robinson reviews the accounts under his management and purchases Paladin stock where suitable.’’

Question #2 : By purchasing Paladin stock for his client accounts, did Robinson most likely comply with the CFA Institute Standards of Professional Conduct?

So the question asks if a portfolio manager complies with the Standards if he buys a stock for his clients based solely on the firm’s research department opinion. The answer is ‘’NO, because he based his purchase on Carlyle’s analysis’’

How is this answer correct in any way? The curriculum states ‘’ XXX can rely on third-party research that has a reasonable and adequate basis’’.

So does this mean that purchased 3rd party research is ‘’good to go’’ BUT ‘’in-house’’ research should be scrutinized?!

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You can build your analysis on the research report of a 3rd party but at least you have to perform an adequate analysis.

The curriculum states : ”xxx can _ rely _ on 3rd party research that has a reasonable and adequate basis”

That’s the point of purchased research.

He should have put in some effort into reading and understanding the report before buying the stock . Just because he knew his colleague, doesn’t mean he doesn’t have to analyze the report.

You need to read this standard again, it is clearly stated in the curriculum In Standard V(A) Diligence and Reasonable Basis that if members and candidates rely on a third party research, they must make reasonable and diligent efforts to determine whether such research is sound.

must is a must

No. Once a company approves a third party to be a research provider, the individual portfolio managers can rely on the purchased research as the research is already vetted

In this case, the ptf manager was a client of Carlyle’s firm. Aka Robinson’s firm had a relationship with the research provider. The fact that the research analyst is the ptf managers buddy doesn’t matter.

Here’s a quote from the curriculum:


A member or candidate may rely on others in his or her firm to determine whether secondary or third-party research is sound and use the information in good faith unless the member or candidate has reason to question its validity or the processes and procedures used by those responsible for the research. For example, a portfolio manager may not have a choice of a data source because the firm’s senior managers conducted due diligence to determine which vendor would provide services; the member or candidate can use the information in good faith assuming the due diligence process was deemed adequate

You are saying no to what the text says, thats why i advised you re-read this part of standard VA Diligence and reasonable from the curriculum again.

See my last post with the direct quote from the cfai curriculum

The bolded text emphasizes that you need to perform the adequate diligence on the research report or may rely on others to determine this (this is no violation)

The violation in the Paladin Shippers item set seems that he got the research report directly from the research dep . without:

(i) performing adequate analysis on it.

or (i)(i) relying on other employee in his firm to determine the quality of this report