Reading 2-VI: Standards of Professional Conduct & Guidanc 2011, accounting, services, return, center

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Session 1: Ethical and Professional Standards
Reading 2-VI: Standards of Professional Conduct & Guidance: Conflicts of Interest

LOS C.: Referral Fees.

 

 

Wes Smith, CFA, refers many of his clients to Bill Towers, CPA, for accounting services. In return, Towers performs routine services for Smith, such as his tax returns, for no charge. With respect to this relationship, Smith:

A) is in violation of both Standard V(B) and III(B).

B) must disclose to his clients that Towers provides services for Smith's personal benefit.

C) is only in violation of Standard III(B), Fair Dealing, by not putting the client first.

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According to VI(C), Referral Fees, Smith must disclose to his clients that Towers provides services for Smith’s personal benefit. Neither of the Standards listed in the other answers apply.

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Standard VI(C), Referral Fees, requires the member to do all of the following EXCEPT:

A) disclose to the referred client the percentage of the member's business that comes from referrals.

B) make required disclosures to the referred client before an agreement is made to provide services to the referred client.

C) disclose to the referred client how much the referral source was paid to refer the client.

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The applicable Standard, VI(C), does not require a member to disclose the percentage of their business that comes from referrals.

Standard VI(C) states, "Members shall disclose to clients and prospects any consideration or benefit received by the member or delivered to others for the recommendation of any services to the client or prospect." Appropriate disclosure means telling the client or prospect, before agreeing to perform services, of any benefit given or received for recommending the member’s services.

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A member or candidate that receives consideration from others for the recommendation of products or services, must disclose the estimated dollar value of the consideration paid in:

A) cash or soft dollars only.

B) cash, soft dollars, or in kind.

C) cash only.

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According to Standard VI(C), Referral Fees, consideration includes all fees that are paid in cash, soft dollars, and in kind. Referral fees must be disclosed to the client or employer before engaging in an agreement to provide services.

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Standard VI(C), Referral Fees, is applicable to:

A) only cash consideration received for the recommendation of products or services.

B) all consideration received or paid for the recommendation of products or services.

C) only consideration paid in soft dollars for the recommendation of products or services.

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According to Standard VI(C), Referral Fees, consideration includes all fees that are paid in cash, soft dollars, and in kind. Referral fees must be disclosed to the client or employer whether the consideration is received by or paid to others for the recommendation.

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Joe James, CAIA, CPA, is a CFA Level II candidate living in Boston. In the course of his accounting practice, James often refers clients to a local law firm specializing in estate planning. James does not violate client confidentiality and does not receive compensation for the referral. However, the law firm often gives James tickets to the theater and major sporting events.

Which of the following statements regarding disclosure is CORRECT? James:

A) must disclose the benefits received for referring clients to the law firm.

B) need not disclose the benefits received for referring clients because no compensation is received.

C) need not disclose the benefits received for referring clients because the clients were developed in the course of his accounting practice.

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Standard VI(C), Referral Fees, requires members to disclose to clients and prospects any consideration or benefit received by the member or delivered to others for the recommendation of any services to a client or prospect. James has received a benefit (free tickets), which must be disclosed to the clients referred by James. Disclosure will allow the clients to determine any partiality of the recommendation.

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Vijay Gill, CFA, leases office space from Land Bank in exchange for an agreement that Gill will pay Land 20% of any fees paid by Land customers to Gill for investment management services. Gill also has an arrangement with Bloom Insurance Advisors whereby Gill receives a fee for each client referred. Gill only refers clients that request insurance products. Gill meets with Randolph Song, a Land Bank customer, who is interested in Gill’s asset management services as well as insurance products. Gill is required to disclose to Song:

A) the terms of the arrangements with both Land Bank and Bloom.

B) the terms of the arrangement with Bloom, but not the terms of the arrangement with Land Bank.

C) neither the Land Bank nor Bloom arrangements, but may disclose them if he chooses to do so.

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Standard VI(C) Referral Fees requires members to disclose to clients and prospects any consideration or benefit received by the member or delivered to others for the recommendation of any services to the client or prospect. Gill is delivering a benefit to Land Bank and receiving a benefit from Bloom, both of which must be disclosed to Song.

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If a CFA charterholder receives a referral fee, he must:

A) consult with the firm's compliance officer, and follow his or her instructions concerning disclosure.

B) disclose the fee to the supervisor, in written form, as an additional benefit.

C) disclose the nature of the fee arrangement to the client before entering into a formal agreement.

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According to Standard VI(C), the nature as well as the value of the fee must be disclosed to the client before entering into a formal agreement. The compliance officer and/or the employee’s supervisor should be contacted for consultation.