Ethics Q - Who's hot tonight? investment, management, recently, completed

ba736

Kevin Bryan is a financial analyst for Summit Investments. Bryan recently completed a research report recommending the stock of Independence Medical Company. Bryan failed to disclose that he has a material ownership interest in Independence Medical through a family trust.

Kim Scott, a CFA Charterholder with Overland Associates, is invited to attend an investment management conference in the Cayman Islands. The sponsor, one of Scott’s clients, has offered to reimburse Scott for all of her expenses. Scott accepts the sponsor’s offer and discloses the arrangement to her employer in writing.

Based on the CFA Institute Research Objectivity Standards, which of the following statements is CORRECT?


A) Summit is in violation of the Research Objectivity Standards but Overland is not in violation.

B) Both Summit and Overland are in violation of the Research Objectivity Standards.

C) Neither Summit nor Overland is in violation of the Research Objectivity Standards.

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Your answer: B was incorrect. The correct answer was A) Summit is in violation of the Research Objectivity Standards but Overland is not in violation.

Summit is in violation because policies and procedures were not in place to prevent Bryan from recommending a stock without disclosing a potential conflict of interest. Overland is not in violation. Scott can accept reimbursement since the sponsor is a client and the reimbursement was disclosed to Overland.

*** This one caught me off guard. Still think 'B' is the proper choice. Any opinions?

ppls

Summit - ROS says disclose if you are owning stock or have an interest in stock you are recommending - that was violated.

do not see an issue with Overland. The disclosure in writing of reimbursement was made to the employer - so looks fine...

language wise - this is vastly cut and dry with respect to the twists the institute does throw at us though! Looks like I need a translator on exam day for the ethics portion, definitely...

CP

zephyranalyst

The first is a definite violation, no point commenting.

To add to what CP said- The key word is client, as 'gifts' from them are usually given a bit more leeway. As long as you communicate it to your employer, and it doesn't affect your objectivity with other clients, it's usually fine.

5566

Haha, what's funny is I interpreted the 2nd situation as if the client was a target of research. I believe it would be a violation if a research target was involved, but it is fine in this case.

NO EXCUSES

MiniMe7

I thought it was B as well, but my reasoning was different. Summit was definitely in violation.

I thought Overland was also in violation. I thought one had to get APPROVAL in writing prior to accepting gifts from clients. I didn't think simple disclosure was enough.

Is this from CFAI or a study provider?

KungFuPanda

It's a Schweser QBank question.

Gifts from clients can be accepted as long as they are reported to your supervisor and do not interfere with your objectivity and ability to manage accounts equally.

WarrenB1

What a weird question. How would a *firm* be in violation? (honest question)

I also don't see the confusion for the Overland -- there is no mention whatsoever what the firm or Kim Scott does.

neil1234

Agreed... I would have answered C.

redskins44

So to finalize:

1) Client gives you a gift, not expected to create conflict of interest

Result: Only need to disclose in writing to employer

2) Client gives you a gift, possibility for conflict of interest

Result: Disclose plus WRITTEN permission

3) Research subject gives you a gift

Result: Disclose plus WRITTEN permission

wilslm

primitive!