CFA Practice Question

CFA Practice Question

Julian Goetz is a partner in the firm of Goetz and Fritz, which provides investment advice to several clients. It has an arrangement with the brokerage firm of GP Williamson who recommends Goetz and Fritz to its trading clients in exchange for research reports provided by Julian. Goetz estimates that the annual benefit to his firm is about 175,000 and the value of reports given to GP Williamson is about 75,000. When Marybeth Gartner, CFO of Crocker Cements, calls Julian to manage her firm's marketable securities portfolio saying that his firm was recommended by GP Williamson to her, he does not disclose the two-way fee arrangement.
A. Julian has not violated any standards since the arrangement with GP Williamson does not come out of the client's fees.
B. Julian has violated Standard VI (C) - Referral Fees.
C. Julian has violated Standard VI (A) - Conflicts of Interests.
Explanation: Julian has violated the standard on disclosure of referral fees because the client, who is unaware of the arrangement, may believe that she has received the best recommendation from GP Williamson. While Julian's firm may be fully capable of providing competent investment advice, full disclosure of all facts lets the client decide who to give its business.

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