Schweser Volume 1 Exam 2 Question 65 investment, performed, determine, before, making

meghanjackson

An investment adviser buys a hot IPO for himself and one client. He made the recommendation before he performed his own due diligence and didn't determine suitability.

The answer confirms that suitability and diligence/basis are violated but implies that fair dealing was not violated in making the recommendation. How is this not a violation of fair dealing?

I would think that fair dealing is violated in three ways: a) making a recommendation to one client before it is distributed widely b) making the recommendation to only one client c) getting in on an oversubscribed ipo for his own account.



Edited 2 time(s). Last edit at Sunday, May 30, 2010 at 04:32PM by Ceredwyn.

KungFuPanda

I think it's more that the answer is "more right" than the other two being wrong because of the inclusion of both Suitability and Diligence, which is what the vignette is more geared towards.

The Fair Dealing standard is more intended to apply to favortism of one client over another that promotes the self-interest of the broker. I.E. routine favortism of the firm's largest clients that pay the most commission. Here the vignette doesn't really discuss that there is a particular reason that Crossley is favoured, at the expense of other clients, or in a way that favours the broker directly in a particular matter.

I got this one wrong too, i have to hope that when Fair Dealing needs to be applied it will be very obvious!

brainsX

Got this wrong too. This to me seems like the pure defintion of fair dealing violation.