Tricky Ethics Question

Key points of the question: CEO of large oil company want batts bro’s (investment bank) to underwrite a new stock issue. As an incentive to place the issue quickly with investors, the CEO offers kim (batt’s bro’s investment banker) the opportunity to fly on his private jet to his ranch ni texas for an exotic game hunting expedition if kim’s firm can coplete the underwriting within one month. Kim: A) Must not accept such lavish benefits in order to maintain objectivity B) Must obtain written consent from batts bro’s before accepting the invitation. I won’t type the other two cos it’s obvious it’s not them. My question is that why isn’t the the first one (A)? From what I read in the ethics section it said small gifts can be accepted however lavish gifts which depend on future performance should not be accepted as you may cause you not to treat all clients fairly. The answer is B however I don’t quite understand why, and what are the boundaries for accepting gifts ACCORDING to CFAI.

From what I gather from the Ethics section, it seems a written consent from employer supersedes everthing else. The way to think of it is that reasonably small gifts are ok, but lavish ones require employer approval. They could’ve put it just like that, I feel that CFAI could do a much better job with ethics than the way it is now.

thanks a lot.

Dreary Wrote: ------------------------------------------------------- > From what I gather from the Ethics section, it > seems a written consent from employer supersedes > everthing else. The way to think of it is that > reasonably small gifts are ok, but lavish ones > require employer approval. They could’ve put it > just like that, > > I feel that CFAI could do a much better job with > ethics than the way it is now. Is that true Dreary? Could something like this fall under supervisory responsibilities violation? Wretched ethics!

The consent comes from the employer, whoever that is. This is IV(B) additional compensation…, not IV©.

It’s clearly B. Not because this is a lavish gift, but because this is considered to be an additional compensation arrangement which are always allowed when disclosed and approved in writing by an employer.

Here’s another: A CFA charterholder and an analyst have been offered an all expense paid trip by SWP to visi thte firm’s processing plants. The analyst has been following the stock for years and recentlly issued a buy recommendation. The CFA charterholder believes that a reivew of the firm’s processing facility during it’s busiest month would be an excellent opportunity to learn more about the business. Accorind to standard I(b) independance and objectivity, is it recommended that the cfa charterholder should: pay for his air travel and hotel obtain written permission from employer accept if he discloses value of trip in next report pay for all his tavel expenses including the cost of meals and incidental items I put B however the answer is: A - I really don’t see why. I’m sure I’ve come accross some other ones where the answer has been that it’s okay as long as your employer okay’s it or you disclose it in your report. What’s the definitive concencus on this type of question?

My understanding is that it is ok to accept payments for such things if it does not threaten your independence and being objective. So, it seems that air travel and hotel stay are considered a bit too much that it could compromize your integrity, but not meals and such. Others agree?

The key difference between the two questions is that in the first question batts bro is the underwriter and does not necessarily need to be independent and objective, they are trying to “sell” the stock, not provide independent and objective advice. However this is additional compensation wich must be approved in writing by the employer. In the second question the charterholder is a research analyst and therefore people are relying on his/her independent and unbiased analysis of the company. These people, much like auditors, should be independent in fact AND appearance. While an all expense paid trip by SWP may in fact not compromise his/her independence, it could certainly appear that way to third parties.

Is it okay to take the trip if there was no other possible way to get there as long as it is disclosed?

info for the initial question: Very important to consider, if it’s an old or a prospective client. Because it’s an old client B is ok. If it was a new client, we could discuss longer.

okay what about this one… It’s completely contrary to the second Q: Judy CFA is an anlayst and pklans to visit a company that she is analysing in order to prepare a research report. Statnard I(b) independance and objectivity: rquires her to pay for all her own expenses and to not accept any gifts or compensation for writing a report. requeires her to pay for her own transport costs, not to accept any girs or compensation for writing the rport, but allows her to accept accommodation and meals that are not lavish. requireds her not to accept any compensation for wrigint a research report, but allows her to accept company paid transportation, lodging and meals. allows dudley to accept transport, lodging, expenses and compensatiobn for writing a report, but requires that she disclose such an arrangement in her report. Well… What d’u lot think???

A better formatting would help. I would go with: She has to pay for all her own expenses and to not accept any gifts or compensation for writing a report.

Damn man, it takes long enough typing these things let alone perfecting spelling and format however: Judy CFA is an anlayst and plans to visit a company that she is analysing in order to prepare a research report. Standard I(b) independance and objectivity: A) requires her to pay for all her own expenses and to not accept any gifts or compensation for writing a report. B) requires her to pay for her own transport costs, not to accept any girs or compensation for writing the report, but allows her to accept accommodation and meals that are not lavish. C) requires her not to accept any compensation for writing a research report, but allows her to accept company paid transportation, lodging and meals. D)allows dudley to accept transport, lodging, expenses and compensation for writing a report, but requires that she disclose such an arrangement in her report. A is wrong. The correct answer is: D. Yes, that’s right D. Who’d have guessed? Any ideas why and what is the difference between this one and the one above.

mambovipi Wrote: ------------------------------------------------------- > Damn man, it takes long enough typing these things > let alone perfecting spelling and format however: > > Judy CFA is an anlayst and plans to visit a > company that she is analysing in order to prepare > a research report. Standard I(b) independance and > objectivity: > A) requires her to pay for all her own expenses > and to not accept any gifts or compensation for > writing a report. > B) requires her to pay for her own transport > costs, not to accept any girs or compensation for > writing the report, but allows her to accept > accommodation and meals that are not lavish. > C) requires her not to accept any compensation for > writing a research report, but allows her to > accept company paid transportation, lodging and > meals. > D)allows dudley to accept transport, lodging, > expenses and compensation for writing a report, > but requires that she disclose such an arrangement > in her report. > > A is wrong. The correct answer is: > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > D. Yes, that’s right D. Who’d have guessed? Any > ideas why and what is the difference between this > one and the one above. Seems rather silly not to accept any compensation when performing this service… unless shes feeling quite generous, there really is nothing restricting her from accepting compensation. That elim. ABC.