Ethics

[June 2013 CFA Level 1 Group]

Use this discussion thread to ask and discuss queries related to Ethics Topic

[Suhail Farooq]

Hey there:

 

I wanted to direct attention to a specific question on Schweser's practice exam (Exam 1, Afternoon session: Problem 10). The question reads as follows:

 

Christopher Kim, CFA, is a research analyst for Batts Brothers, an investment banking firm in New York. Kim follows the energy industry and has frequent contact with industry executives. A CEO of a large oil and gas corporation that has previously employed Batts Brothers to underwrite a stock issue has invited Kim to his office to discuss a secondary offering of the company's stock. As an incentive to place the issue quickly with institutional investors, the CEO offers Kim the opportunity to fly on his private jet to his ranch in Texas for an exotic game hunting expedition if Kim's firm can complete the underwriting within one month. According to the CFA Institute Standard of Conduct, Kim:

 

A) Must not accept such lavish benefits, in order to maintain his objectivity.

B) Must obtain written consent from Batts Brothers before accepting the invitation.

C) May accept the invitation without consent only if he discloses the trip to Batts Brothers before accepting.

 

According to Schweser, this is the answer provided...

B)

"According to Standard IV (B) Additional Compensation Arrangements, members and candidates must obtain written permission from their employer before accepting an offer of compensation (for the performance of work done for their employer) in addition to what they receive from their employer and that is contingent upon future performance. Payment to investment bankers to complete an underwriting is a standard business practice."

Why is the answer not A? Don't such lavish benefits effect an analysts' independence and objectivity (Standard I-B)?

[protyusha ghosh]

Hi ,
the answer is B because His IB is not writing a report or something and
that his incentives will not
affect his judgement its like a performance  bonus I hope my understanding
is okay.

Thanks
Protyusha

[Akshay Verma]

Hey...yup she is correct...he can accept the offer but after taking consent from his employer...its not hampering the independence and objectivity. It clearing says in the book that you cannot accept gifts etc. except from your clients, as it is reward for your work, though you should take the consent of your employer.

[talha arif]

A wiered question. Than what is salary is salary not a monetary compensation ?

Which of the following statements regarding employee/employer relationships is NOT correct?

A) An employee is someone in the service of another.

B) A written contract may or may not exist between employer and employee.

C) There must be monetary compensation for an employer/employee relationship to exist

Monetary compensation is not a requirement of the employee/employer relationship

On Tuesday, February 12, 2013 8:15:19 AM UTC-8, June 2013 CFA Level 1 Group wrote:

[talha arif]

Michel Marchant, CFA, recently became an independent money manager. After six months, he has only ten clients, who are family and friends. To supplement his income, Marchant accepted part-time employment as an advisor at Middleton Financial Advisors. According to CFA Institute Standards of Professional Conduct, which of the following statements about Marchant's duty to his new employer is CORRECT?

A) Marchant must inform Middleton to keep his existing clients and must inform his existing clients of his new part-time employment at Middleton.

B) Marchant need not inform Middleton about his existing clients but must inform his existing clients about his new part-time employment at Middleton.

C) Marchant must inform Middleton about his existing clients but need not inform his existing clients about his new part-time employment with Middleton.

Standard IV(A) and IV(B) requires that Marchant inform both Middleton and his existing clients.

Why should we disclose about our clientail to the employer by that we can also loose our own business. please explain .

[talha arif]

Brian Bellow, a CFA Institute member, is a portfolio manager for Progressive Trust Company. Several friends asked Bellow to review their investment portfolios. On his own time, Bellow examined their portfolios and made several recommendations. He received no monetary compensation from his friends for his investment advice and provided no future investment counsel to them. According to CFA Institute Standards of Professional Conduct, did Bellow violate his duty to Progressive Trust?

A) No, because Bellow received no monetary compensation for his services.

B) Yes, because he undertook an independent practice that could result in compensation or other benefit to him.

C) No, because Bellow provided no ongoing investment advice.

Standard IV(A) does not preclude providing independent services for compensation while still employed; however, notification to the employer is required describing the type of service, the expected duration, and the compensation. Compensation includes more than just monetary benefits.

................ My question is that he didnt recieve any compensation so why is this a breach neather he is continuing in future to provide such service.

[talha arif]

Jill Marsh, CFA, works for Advisors where she manages various portfolios. Marsh’s godfather is an accountant and has done Marsh’s tax returns every year as a birthday gift. Marsh’s godfather has recently become a client of Advisors and asked specifically for Marsh to manage his account. In order to comply Standard IV(B), Disclosure of Additional Compensation Arrangements, she needs to:

A) have her godfather cease doing her taxes.

B) liquidate from her personal portfolio any stocks her godfather owns and verbally tell her supervisor about the tax services.

C) do neither of the actions listed here.

Standard IV(B) requires that members disclose to their employer in writing all benefits that they receive in addition to their regular compensation for services they perform on behalf of their employer. It is not unreasonable for an individual’s godfather to give them a birthday gift. Moreover, since the tax services were a regular birthday present before her godfather became a client, this implies that they are unrelated to any investment management services.

Is tax service is not a threat that if she will nnot manage portfolio well than godfather will not help her save tax is not shaddy.

[Lev Elgudin]

Talha,

I would approach these types of questions differently. Neither A or B fit the right type of answer. A- you don't have to cease any external activities as long as disclosed and B-how liquidation of personal portfolio stocks is related to the posed question? Hence, the only logical answer left is C, if in doubt.

Leo

--
You received this message because you are subscribed to the Google Groups "June 2013 CFA Level 1 Group" group.
To unsubscribe from this group and stop receiving emails from it, send an email to june-2013-cfa-level...@googlegroups.com.
For more options, visit https://groups.google.com/groups/opt_out.
 
 

[talha arif]

Karen Dalby, CFA, is a rising star at a major investment bank and has an extremely demanding schedule. To avoid "burning out" new hires, the bank has instituted a mandatory vacation policy which requires employees to take at least 5 days of vacation per year. At the end of the year, Dalby has taken no vacation, but is scheduled to travel to Fiji to take the mandatory 5 days. The bank’s most important client is suddenly targeted in a hostile takeover and asks specifically for Dalby to join the takeover defense team. Her supervisor, Hank Lone, CFA, asks Dalby to cancel her vacation and she complies. Lone is most likely:

A) not in violation of the Code and Standards.

B) in violation of Standard IV(C) "Responsibilities of Supervisors."

C) in violation of Standard IV(A) "Loyalty."

Lone has a responsibility to equally enforce all firm policies to demonstrate that all rules are equally important.

 Now this is a teaser . Rules are important I agree but there is this conflict to what we studied that clients should be given priority. please ExPlAiN :I

To unsubscribe from this group and stop receiving emails from it, send an email to june-2013-cfa-level-1-group+unsub...@googlegroups.com.

[Soban Memon]

Question 11 of the ethics quiz by IFT;

11. Frank Douglas, CFA and Carl Sheen , CFA were looking together for research on the coal mining industry in Australia. They both conducted research and made various site visits; however midway thru the research, sheen fell severely ill and had to leave the project. Douglas complied the report incorporating sheen's analysis and research, but did not publish his name on the research report b'coz sheen didnt agree with Douglas's final recommendation for the industry.

Did douglas violated any of the CFA I's standards of professional conduct?

A. NO

B. yes, with respect to misconduct.

C. Yes, with respect to misrepresentation.

Correct answer was A; but i didn't get it.
Can anybody explain this.

To unsubscribe from this group and stop receiving emails from it, send an email to june-2013-cfa-level...@googlegroups.com.

[Lev Elgudin]

Soban,

this one is very tricky question. While misrepresentation seems to be a right answer, I think the reason why A is correct is because "models and analysis developed by others at a member's firm are the property of the firm and can be used without attribution". 

Thank you,

Leo

[Soban Memon]

An analyst thinks that a major change in the tax law will benefit holders of utility company stocks. She immediately begins calling all her clients and telling them of the upside potential of investing in such assets now. Based upon this information, this is most likely:

A) a violation of Standard V(A), Diligence and Reasonable Basis.

congruent with Standard V(A), Diligence and Reasonable Basis.

C) a violation of Standard III(C), Suitability.


Your answer: A was incorrect. The correct answer was C) a violation of Standard III(C), Suitability.

[Soban Memon]

Which of the following actions is least likely to prevent the misuse of insider information?

A) Placing securities on a restricted list when the firm is in possession of material nonpublic information.

B) Controlling relevant interdepartmental information.

C) Monitoring all the phone calls made by the brokers.

Your answer: A was incorrect. The correct answer was C) Monitoring all the phone calls made by the brokers.

Standard II(A), Material Nonpublic Information, applies in this situation. Standard II(A) suggests the use of "fire walls" to protect the firm and to conform to the Standards. A fire wall is an information barrier designed to prevent the communication of material nonpublic information between departments of a firm. Although the fire wall system should provide a means to review transactions, it is not feasible to monitor all communications into/out of departments. Placing sensitive securities/firms on "watch, "restricted," or "rumor" lists helps management target monitoring of transactions.

[Arif Irfanullah]

Click here for a video response to questions posted under the Ethics discussion thread.