Ethical question, III(B) Fair Dealing security, question, accounts, comment

SFoyil

In the Example 2 (Page 71), bank has the policy to allocate security to commingled account first and then rest of the pension fund account, also non-discretionary accounts have a lower priority then discretionary accounts.
It is clear that bank should disclose this to all clients. However, in the comment, it mentioned, in this case, disclosure of the bank’s policy would not change the fact that the policy is unfair.
Here is my question, it has been mentioned in CFA text, member and candidates may differentiate their services to clients. If you differentiate the service, it would be unfair for certain clients in favor of others. You could differentiate by all kinds of criteria, either account size, type, etc. How do you define the word “fair”? in this example, the bank could argue that it is provide different level of service so it’s still not violate the code and standards.
Any comments?

brainsX

So your first priority is to treat everyone fairly.  Ask yourself ”am I disadvantaging one client in order to advantage another?”.  As long as you are not disadvantaging any of your clients, you can offer ‘premium’ services to clients that are willing to pay extra as long as:
a) you fully disclose this policy to all clients, and
b) the premium service is made available to all clients - i.e. the client chooses if he/she wants premium service (you’re not making that decision for them by selectively offering premium service to only some of your clients).
So if you are in some way neglecting client A to offer premium service to client B, you are violating the standard.
If you develop a special monthly report on topic X which you send only to prefered clients (but you fully disclose to all clients that this report is a premium service which all clients can receive if they upgrade to prefered status), you are not violating this standard.

maratikus

Different services mean different extent of coverage, depth of research reports sent, frequency of follow-up etc.
However, different service level doesn’t mean that you can allocate a trade in priority to one type of client. Trade allocations must be fair, in that they have to be placed at the same time and have to be pro-rated in case of oversubscription.
For example, if I have 2 individuals for whom I manage their wealth and I charge different fees, it’s ok as long as I disclose it. However, if I want to buy some corporate bond on the primary market for both funds, I have to give the 2 orders at the same time. The example states that orders are not placed at the same time, which is unfair.

Daniel1985

For the exam a rule I used was if different clients are paying different amounts for the services then its fair, if everyone pays the same and they are being treated differently then its not fair.
i.e. client A pays for gold membership which is $100 and client B pays for silver membership which is $75 and client A is receiving preferential treatment then (for the exam) I found this was considered fair.
however if both client A & B are paying $100 for the gold membership and one of the client is still receiving preferential treatment then the firm is being unfair and hence a violation

fishmarket

Maybe I am not right, as the exam was 2,5 months ago already and my head is almost clean again.
But as I can remember, I still believe that you can offer clients different analisys, different reaction to thier inqieries (24 hours and working hours), personal manager, different prices in commission etc., and it is fair (it should be disclosed though). But you can’t always discriminate one client before the others in the prices of the actives themselves, you should distribute them between all your paying clients at fair (equal) basis.

yuoska

As what the curriculum says fair does not mean equally and its always depends on the scenario. The key rule that I always follow is you can differentiate the services as long as you have disclosed to the clients i.e. the clients knows types of the services and it is fine to differentiate the service as long as other clients are not at disadvantage.

giants2010

As what the curriculum says fair does not mean equally and its always depends on the scenario. The key rule that I always follow is you can differentiate the services as long as you have disclosed to the clients i.e. the clients knows types of the services and it is fine to differentiate the service as long as other clients are not at disadvantage.