optiix

An analyst, who is a CFA Institute member, manages a high-grade bond mutual fund. This is his only professional responsibility. When the analyst comes across a speculative stock investment that he feels is a good investment for his personal portfolio, the analyst:

A) is in violation of Standard IV(A), Loyalty to Employer, by spending time analyzing stocks when he should only analyze bonds.

B) must notify his supervisor about the stock according to Standard VI(B), Priority of Transactions, to see if it is appropriate for the portfolio that he manages.

C) may invest in the stock because the analyst would not purchase the stock for the bond portfolio he manages.

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The problem says the analyst “came across” the speculative stock investment. We do not know if the analyst neglected his duties. Since such an investment is clearly not appropriate for a high-grade bond fund, the analyst may invest in the stock without any restrictions relating to the fund.

optiix

Lance Tuipulotu, CFA, is a portfolio manager for an investment advisory firm. He plans to sell 10,000 shares of Park N’Wreck, Inc. to finance his daughter’s new restaurant venture, but his firm recently upgraded the stock to "strong buy." In order to remain in compliance with Standard VI(B) "Priority of Transactions," Tuipulotu must:

A) not sell the shares of Park N’Wreck.

B) notify his firm of his intention to sell the shares before selling the shares.

C) delay selling the shares until a firm client makes an offsetting purchase to avoid having a market impact.

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Standard VI(B) "Priority of Transactions" does not prohibit Tuipulotu from trading opposite the firm’s recommendation, but he should notify his firm first. Note that if Tuipulotu were a research analyst covering Park N’Wreck, he may be prevented from selling the security if his firm claims compliance with the CFA Institute’s Research Objectivity Standards.

optiix

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.

optiix

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. Towers has just become a member of CFA Institute. With this development, Towers must:

A) only reveal to the prospects referred by Smith that he performs services for Smith.

B) reveal to the prospects referred by Smith that he performs services for Smith, along with the estimated value of those services.

C) discontinue his services for Smith.

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According to VI(C), Referral Fees, as a member of CFA Institute, Towers must tell his clients about the payment in kind to Smith along with an estimate of the value of those services.

optiix

An analyst who is a member of CFA Institute has composed an introductory information packet for her new clients, which includes information on fees she receives for referring clients to other professionals and those she pays for having clients referred to her. With respect to Standard VI(C), Referral Fees, this action:

A) may not satisfy the Standard if such information is only provided after the receivers of the information have become clients.

B) is not addressed in the Standard.

C) exceeds the requirement of the Standard because she does not need to reveal the fees she pays to those that refer clients to her.

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Standard VI(C) says that a member must reveal information both on fees she receives for referring clients to other professionals and those she pays for having clients referred to her before a prospect becomes a client. This allows the prospect to evaluate any partiality of a recommendation and the full cost of the services.

optiix

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.

optiix

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

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

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

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

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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.

jawz

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

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

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

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

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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.

jawz

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 only.

C) cash, soft dollars, or in kind.

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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.

jawz

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.