In light of Singhs comments during his telephone call to Patel prior to his uncles death, which of the following actions that Patel can take comply with CFA Institute Standards of Professional Conduct? | A) | Patel may change the current portfolio strategy and begin trading based upon Singhs expectations because he advised her to do so. |
| | B) | Patel must adhere, in principle, to the existing strategy but may begin altering the accounts composition based upon Singhs expectations. |
| C) | Patel must adhere to the existing portfolio strategy until she meets with Singh to develop a new portfolio strategy based upon updated financial information but may place trades which are consistent with the existing strategy. |
| | D) | Patel must not place any trades in the account until she meets with Singh to develop a new portfolio strategy based on the updated information. |
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Answer and Explanation
According to Standard III(C) Suitability, Patel must observe the written investment objectives now in effect as determined in cooperation with the client and may trade only on that basis. Because the anticipated change in Singhs financial condition was subject to an event of indeterminable timing, she should continue to honor the existing written investment objectives until a change (1) is warranted by an actual increase in the clients total financial assets and (2) has been agreed upon with her client.
According to CFA Institute Standards of Professional Conduct, may Patel reallocate Singhs portfolio toward technology stocks after his Uncle dies but before the meeting with Singh? A) | No, because Patel and Singh must meet and revise the investment policy statement and portfolio strategy before reallocating. |
| | B) | No, because Patel must wait until the next annual meeting to reallocate. |
| | C) | Yes, because the funds have actually been transferred and the timing is no longer uncertain. |
| | D) | Yes, because the total value of the municipal bonds received into the account will be too large relative to the other assets in the portfolio. |
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Answer and Explanation
According to Standard III(C) Suitability, investment recommendations and actions must be consistent with a clients written objectives and constraints (usually in the form of an investment policy statement (IPS)). Because Singhs written IPS would not allow the large allocation to technology stocks prior to receiving the inheritance, the IPS must be updated by Singh and Patel prior to taking any actions that deviate from the original IPS. Patel will violate Standard III(C) by reallocating the portfolio before meeting with Singh.
Did Patel violate any CFA Institute Standards of Professional Conduct when she purchased the NetWin stock for Singhs portfolio or for the other clients portfolios? Net income | Depreciation expense |
Answer and ExplanationAccording to Standard III(C) Suitability, Patel must analyze the appropriateness and suitability of NetWin.com stock on a case-by-case basis before buying it. This will necessarily consider the basic characteristics of the security and how these will affect overall portfolio characteristics relative to the existing investment strategy for each portfolio. Patel has not analyzed the effect that the stock will have on any of the individual portfolios in question and has thus violated the Standard. Patel cannot look at aggregate measures to determine the appropriate weight that the security should represent in the individual portfolios because the portfolios are being managed individually, not in aggregate.
Which of the following is least accurate regarding the promotional announcement of Patel passing the Level 3 exam? A) | The fact that a promotional announcement was made violates the restrictions on misrepresenting the meaning of the CFA designation. |
| | B) | The promotional announcement uses the letters CFA as a noun and hence is an improper use of the designation. |
| | C) | The announcement is likely a violation because passing the level 3 exam does not entitle Patel to use the CFA designation. |
| | D) | The announcement violates the Code of Ethics because it implies that obtaining a CFA charter leads to superior performance. |
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Answer and Explanation
An announcement that a member of a firm has received the right to use the CFA® designation is not a violation of the Code or Standards. However, Standard VII(B) requires that any reference to the Charter must not misrepresent or exaggerate the meaning or implications of the CFA designation. A Charterholder cannot claim that holding a Charter leads to superior performance results. The letters CFA can only be used as an adjective (never a noun, as in he is a CFA). Finally, passing all three exams does not give one the right to use the designation. All criteria must be met (e.g., experience requirements) before Patel can use the designation.
With respect to the choice of broker, did Patel violate any CFA Institute Standards of Professional Conduct? | A) | Yes, since Patel is obligated to seek the best possible price and execution for all clients. |
| | B) | Yes, since Patel has inappropriately directed trades to a personal friend at a high-priced brokerage firm. |
| | C) | Yes, since Patel failed to properly notify Singh that using TradeRight would lead to higher commissions and opportunity costs. |
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Answer and Explanation
Since Singh directed Patel to use TradeRight, this should be considered client-directed brokerage. While Patel should inform Singh of the implications of that choice, Patel has no option but to follow the clients direction according to Standard III(A) Loyalty, Prudence, and Care. Singh was fully aware of the fees charged by TradeRight relative to other brokerage firms and elected to use TradeRight anyway. Investment managers are obligated to seek the best price and execution in the absence of client direction.
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发表于 2008-9-15 16:32
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