I think the answer is wrong, please share your thoughts thanks Perley & Sons is an investment advisor company that just signed a contract with full discretionary power for the management of assets for Bright Future, a charitable fund. Without consultation, portfolio manager Martin Brown, CFA, decides to trade the funds’ assets through a brokerage firm that provides, as an additional benefit, research reports for companies in the microchip industry. These companies represent the main investment interest for most of the Perley & Sons clients. The Bright Future portfolio does not hold any equities in the microchip industry, and, because of its risk profile, is unlikely to ever do so. Which of the following activities represents a possible breach with the CFA Institute standards? A) Exercising a selection principle that does not comply with the idea of best trade price and execution. B) Accepting research reports from the brokerage firm that do not benefit client portfolios. C) Lack of action in consulting with the client before choosing the brokerage firm. Your answer: B was incorrect. The correct answer was A) Exercising a selection principle that does not comply with the idea of best trade price and execution. The problem refers to the fiduciary duties of the analyst and brokerage contracts involving soft money. Trades placed with a broker that provides the firm with research are implicitly paying for the research. In a competitive marketplace, it is probable that the trades could have been as effectively placed with a broker that was able to provide research that would apply to the holdings of Bright Future. According to Standard III(A) Loyalty, Prudence, and Care, it is permissible to direct trades of the client portfolio through a broker who provides research that does not directly benefit the client portfolio, but the client should be informed about the situation.
I believe there is already a thread floating with the same Q, see: http://www.analystforum.com/phorums/read.php?13,1125127
rp77 thanks for your reply. After reading through the attached thread, I can understand the merits for both A and B, however still not sure which is the right answer
Please can someone explain to me why it is C Marc Feldman, CFA, is manager of corporate investor relations for a high-tech startup, zippy.com, in Boise, Idaho. Feldman learns that Larry Smith, controller, is altering the accounting records. Knowing the data is incorrect, Feldman releases Smith’s financial data to investors. This action: A) constitutes a violation of the Standard concerning duty to employer. B) constitutes a violation of Standard III(D) concerning performance presentation. C) constitutes a violation of his fundamental responsibilities under the Code and Standards. Your answer: B was incorrect. The correct answer was C) constitutes a violation of his fundamental responsibilities under the Code and Standards. As a CFA Institute member, Feldman is bound, under Standard I(A), not to “knowingly participate or assist in any violation of such laws, rules, or regulations.” Since it should be clear that releasing bogus financial information is in contravention of laws, rules, and regulations, and since he knows that the data is purposely distorted, he must not release the data to the public. Doing so places him in violation of the Code and Standards.
I found that QBank questions on ethics are not that good. Anybody else feel the same way?
I probably will agree, look at this question below that is one of the classic example A CFA charterholder coaches a fellow employee as that colleague studies for the CFA exams. The charterholder tells the colleague all that she remembers from her exams and how they were constructed. This is: A) a violation of Standard I(D) concerning professional misconduct. B) not a violation of the standards. C) a violation of Standard VII(B) concerning use of the designation.
I see your point. I think it’s waste of tiem. Concentrate on EOC for now.
Another one that confuse me: With respect to Black’s instruction to execute the trade for Talbert, according to the Standards, Wood should: A) execute the trade immediately. B) execute the trade only after consulting the firm’s legal counsel. C) not execute the trade because he has not met Talbert himself. Your answer: C was incorrect. The correct answer was A) execute the trade immediately. Since Black is Wood’s supervisor and has the CFA designation and Wood sees nothing wrong, Wood has no reason to take any intermediate action. (Study Session 1, LOS 2.a)