bmaggie

While trading on behalf of a pension account, an analyst receives special research reports from the brokerage firm with whom she is doing the trades. Such an activity is:

A) a violation of only The Code of Ethics.

B) not in itself a violation of Standard III(A), Loyalty, Prudence, and Care, nor the Code of Ethics.

C) a violation of both Standard III(A), Loyalty, Prudence, and Care, and the Code of Ethics.

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An analyst can receive research from a brokerage firm with whom she is trading on behalf of a client. The analyst should inform the client of the arrangement. The client is more likely to violate Standard III(A) by obtaining non-research services or, worse yet, personal benefits from the brokerage firm.

bmaggie

Alan Cramer, CFA, practices in a country that does not regulate the investment of company retirement plans. He was retained by Bingham Companies to manage their corporate pension plan. Bingham’s management has approached Cramer and requested that Cramer invest the entire plan in Bingham stock.

Cramer may:

A) not invest any of Bingham Company's retirement plan in its own stock regardless of the stock's prospects and in spite of management's request.

B) invest a portion of the retirement plan in Bingham Company stock if the investment is prudent and if he keeps the overall portfolio properly diversified.

C) invest all of the retirement plan assets in Bingham Company stock according to management's request only if Cramer can document that the investment is more prudent than any other investment opportunity he finds.

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Standard III(A), Loyalty, Prudence, and Care, requires members to comply with their fiduciary duty. Retirement plan managers owe their duty to the plan participants, not to the management of the company sponsoring the plan. The fiduciary duty includes the obligation to diversify the plan’s investments, regardless of the quality of the sponsoring company’s stock. Investing in the company’s stock is not prohibited.

bmaggie

Calvin Moore, CFA, has been transferred from the brokerage house of the Browning Company to the portfolio management department. In portfolio management, Moore learns that clients are grouped into three divisions according to portfolio value, divided as follows:

• Group 1            up to $10,000

• Group 2            from $10,001 to $100,000

• Group 3            more than $100,000

When recommendations are announced or trades are initiated, a particular sequence is followed in communicating to these groups.  At the next monthly meeting, Moore suggests that the sequencing practice is a breach of CFA Institute Standards. One of Moore’s co-workers replies that the grouping approach helps the company in applying the Standard regarding portfolio recommendations.  He further suggests that because Browning’s overall performance is more strongly affected by actions taken on the high value portfolios, that these portfolios should take priority over the small value portfolios. What should Moore do?  Moore should:

A) do nothing since there is no breach with the Standards.

B) disassociate himself from the problem and seek legal advice.

C) prepare a written report to the CEO describing the problem.

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Taking a special approach in disseminating information in relation to initiating trades is a breach of Standard III(B), Fair Dealing. Given the fact that Moore works in the department and has already unsuccessfully tried to prevent the practice from continuing, he needs to disassociate himself and seek legal advice.

zaestau

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