L2 June 2011 Afternoon Mock Exam Question 4 solution, capital, balance

sabaruch

Question #4 pertains to "Reading 10 - Prudence in Perspective," and I'm wondering if the answer in the Answer Set is incorrect. The solution specifies "C - of impartiality" as the correct answer, which would imply that the trustees did NOT comply with their duty of impartiality. However, the solution explains that the trustees appear to have FULFILLED their duty to be impartial to balance income and capital. Seems like this is a contradiction.

I think the correct answer should be "A - to avoid fees," since both unit trusts have the same objectives and risks, with the exception being that the new unit trust incurs a 2% front-end load. By going with this new unit trust, the trustees violated their "duty to avoid fees, transaction costs, and other expenses that are not justified by the objectives of the investment program."

I did not see any mock exam errors in the Errata for Level 2 that CFAI provides on its website. I've sent a message to CFAI and will post any response here if and when I receive one.

Would love to get other people's take on this.

ayodayo

After about a month after submitting my inquiry to the CFA, I finally got a response. They affirmed my initial suspicion that the answer did not fit the question, so they have simply corrected the question to fit the answer. The question has been corrected to:

4. Macharia’s most appropriate response to Question 1 is: “Yes, by the trustees only complying with the duty:

I'll let you check the answers for yourself, so that I don't completely replicate the question verbatim. I'm not sure where the corrected version will appear, because I did not see any mock exam errors in the errata.



Edited 1 time(s). Last edit at Friday, May 20, 2011 at 05:21PM by wbrocks.

luda002

Actually, upon further inspection, C might be the correct answer as p.258 states "Impartiality means that a trustee must recognize the divergent interests of different beneficiaries." Still pretty vague, though, as the body of the question seems to imply that there was an issue with "Loyalty" rather than "Impartiality."



Edited 1 time(s). Last edit at Tuesday, April 12, 2011 at 04:39PM by wbrocks.