I revisited this after having covered it in CFAI text a few months ago…I read through CFAI last night and felt I had clarified a few points. Now if you asked me about soft dollars, I think I could talk about the key points for a few minutes. When it came to the EOC questions on page 159. Disaster 3/6… Is this just me, the questions seem a little vague, which I appreciate exam day ethics is all about. Other than re reading it, even though I thought I understood it, how can I tackle these questions…anyone else experienced this??? Up to now I haven’t found anything else quite so vague after the second run through.
I’m in a similar situation. The only bit of advice I can provide is to remember the thought process based on CFAI’s answer explanations. I bombed Ethics last year and did pretty poorly on this year’s EOCs, so there’s not much more one can do at this point.
I Think you are right…I did the Schweser Eoc questions on soft $ and was ok with 5/6. There is something about the style of CFA question with these that is clearly my downfall…normally I cane Ethics at 70%+
For me the confusion on soft dollars is all around the violations under client directed brokerage. In the examples (#7 and #8 in the soft dollar reading) it’s very difficult for me to tell that one client is using another client’s brokerage absent it being clearly spelled out. I guess the key points i would remember are that you CAN use one client’s brokerage for another client’s benefit in AGENCY trades, so long as in the long run the client whose brokerage you used will receive benefits commensurate. In PRINCIPAL trades there are often laws (ERISA) stating you must use the client’s brokerage only for their benefit, but absent this law, you still need WRITTEN CONSENT to use one client’s brokerage for another’s benefit. In client directed brokerage, you cannot use one client’s brokerage for another’s benefit. The third is where i have trouble figuring out in the vignette whats going on. Also a key point is to remember that in situations where there is a fiduciary or trustee appointed, the benefit of the brokerage may not go to the trustee or fiduciary, but most go to the client (pension clients, fund clients, etc.), and written consent must be obtained stating that the soft dollars will solely benefit the client.