A is a portfolio manager. His old friend B refers to A’s firm high-level individuals. In return, A allows B to play golf at A’s country club for each new client referred. According to VI © Referral Fees, A is required to disclose the arrangment with B to: a. his employer, all clients and all prospective clients b. prospective clients referred by B c. his employer and to prospective clients referred by B. My take would be (a) since the standard VI © says: Members and Candidates must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from, or paid to, others for the recommendation of products or services. According to a training material provider, the correct answer is - surprisingly- ©. Explanation says that you need to disclose to employers and to affected clients. Could someone explain why you should not tell to existing clients? I think the supposedly correct answers contradicts with the standard.
i had the same first impression as you. i think the issue is that his existing clients (which were not referred by B) have nothing to do w/ this referral fee. the referral fee reflects neither a conflict of interest, doesn’t effect the fair dealing standard, and the fees aren’t involved in the existing clients. imagine if you had a client of 10 years. but one day your sibling called you up and referred a new client to you, for which you paid him/her back with a free dinner. what is the point of notifying the client you’ve already had for 10 years. it has nothing to do w/ him, and your existing relationship isn’t changed in any way.
In the question, A did not get just an occasional referral from B but had a policy of rewarding him for new clients. I left part of the text where B is described as a head hunter who meets lots of wealthy executives and directs them to the firm whera A works. It looks to me that this kind of policy should be brought into attention of his existing clients according to the standard. One could interpret (a) so that ‘all clients’ refers to the whole firm and not just A and his clients. But this requires interpretation beyond what is said…
This is one of those remarkably ambiguous and misleading ethics questions that makes ethics a crapshoot regardless of how many times you study it. It clearly states in the CFAI curriculum under referral fees that all forms of compensation received from or paid to others for the recommendation of products or services must be disclosed to employers, clients, and prospective clients.
The key here is that the question comes from"a training material provider", apparently its not a very good provider. As most providers will even tell you to use the CFA curriculum as your source for ethics, since they tend to do a horrible job in preparing you for it. Don’t assume that just because a test provider posted a question and you got the answer wrong, that you are, it may not be the case.
notic4lyf Wrote: ------------------------------------------------------- > This is one of those remarkably ambiguous and > misleading ethics questions that makes ethics a > crapshoot regardless of how many times you study > it. It clearly states in the CFAI curriculum > under referral fees that all forms of compensation > received from or paid to others for the > recommendation of products or services must be > disclosed to employers, clients, and prospective > clients. +1
What training provider you are using shootinguser?
This question was from Schweser practice exam (exam 1, afternoon part).
you should probably post the whole quesiton on. his exising clients have nothing to do with this referral system… only prospective clients do
There are lots of these ethics questions where the answer is also a). Would CFAI have a problem if your brochure said “BTW - If my buddy Joe B Donuts referred you, I am letting him play golf at my country club for the referral”? Of course not, which means that a) is also right. If I had such a referral system I would write that in my brochure just so nobody could say that I didn’t tell them and I would never forget. Ethics is so much BS.
I recognize this question from the Testrac sample exam #2. Also got wrong
JoeyDVivre Wrote: ------------------------------------------------------- > > Ethics is TOO much BS. Fixed!