David Sanders is the Chief Investment Officer at a money management company that claims it is in compliance with CFA Institute Soft Dollar Standards. Last year he purchased a Bloomberg system for the portfolio managers to get information concerning investment decisions. He used soft dollars from brokers to pay for the system. Because the system has come up for renewal, he has an assistant audit the use of the terminal for a week. The assistant reports that the system is only used about 20 percent of the time for investment decision-making activities and 80 percent for other uses. Sanders: A) can use soft dollars to pay for 20 percent of the system for the next year and must reimburse clients for 80 percent of the cost of last year’s system. B) can use soft dollars to pay for 20 percent of the system for the next year and need not take any action concerning last year’s soft dollars. C) cannot use soft dollars to pay for any part of the system for the next year, but need not take any action concerning last year’s soft dollars. D) can use soft dollars to pay for all of the system.
I would have chosen A but I still need to reread that
have you guys done this question somewhere else? yes, the correct answer is B. well done~ I am looking into the text book to see why its not A. why don’t you need to reimburse last year’s over charge???
i guess A too.
probably it only claimed compliance this recently ehehhe
B choosers, any words on why not A? I cannot find anything particular in the text book.
i saw this question before but i guessed right on it the first time. I just couldn’t see how they could go back and retroactively figure out what portion of the bloomberg was used for research LAST year if this was their first audit… and for whatever reason, an ethics question made practical sense.
i got it right because the schweser professor said so. Just remember it. i have no real logical explanation for it. to cfasf1’s point…it is sort of impractical to go back retroactively.
because at the time of original contract the machine could have been used 100% for the the investment decision making…CFAI Research Objectivity Std. suggests regular checkups on the usage for the very reason if I am correct.
When he originally purchased it he thought it was being used for the clients so he acted in their best interest. Analogy - You use soft dollars to buy research on a company but choose not to place the investment in any portfolios. You don’t need to reimburse the client for their soft dollars