Reading 2-VI: Standards of Professional Conduct & Guidan return, services, accounting, 2010, class

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

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

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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c

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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.

bmaggie

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 TRUE? 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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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 nature of the fee arrangement to the client before entering into a formal agreement.

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.

bmaggie

Which of the following statements about Standard VI(C), Referral Fees, is TRUE?

A) Referral fees may be disclosed before or after proceeding with an agreement for service.

B) Referral fees must be disclosed before proceeding with an agreement for service.

C) Referral fees must be disclosed after proceeding with an agreement for service.

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According to Standard VI(C), referral fees must be disclosed before proceeding with an agreement for service in order for the client or employer to compute the full cost of the service and to evaluate any potential partiality of the recommendation.

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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 the percentage of the member's business that comes from referrals.

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, soft dollars, or in kind.

B) cash or soft dollars only.

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.

bmaggie

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.

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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.