Reading 2-III: Standards of Professional Conduct & Guidance: Duties to Clients and Prospective Clients

1、Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. He places trades for the fund with River City Brokerage. River City provides Calaveccio with soft dollars to purchase research. River City also deals in municipal bonds, some of which Calaveccio holds in his personal portfolio. He periodically uses the soft dollars to request research reports on various small cap stocks and also on the status of the municipal bond market and issues that he holds. These actions are:

A)   not in violation of the Code and Standards.

B)   in violation of his fiduciary duties regarding the small cap research, but not so regarding the research on the municipal bonds.

C)   in violation of his fiduciary duties regarding both the small cap research and the municipal bond research.

D)   in violation of his fiduciary duties regarding the municipal bond research but not so regarding the research on the small cap issues.

The correct answer was D)

The issue at hand is the member's fiduciary responsibilities in handling "soft dollars" which are technically the property of the client. Standard III(A), Loyalty, Prudence, and Care, delineates the member's fiduciary responsibilities with regards to soft dollars. Since municipal bond research is clearly not relevant to the Small Cap Fund holders, he is clearly using the soft dollars to obtain research for his personal benefit and is in violation of the Standard.

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