CFA Practice Question

There are 361 practice questions for this study session.

CFA Practice Question

John MacDaniel, CFA, is a trust officer for Confederation Trust Company. MacDaniel has been using Joe Stein, a broker, almost exclusively for trust account brokerage transactions. For those stocks in which Stein's firm makes a market, Stein has been giving MacDaniel lower prices for personal purchases and higher prices for personal sales than he has given MacDaniel's trust accounts and other investors.

John's actions violate which of the following CFA Institute's Standards of Professional Conduct?

I. Standard III (B) Fair Dealing and Standard III (C) Suitability
II. Standard IV (B) Additional Compensation Arrangements
III. Standard I (B) Independence and Objectivity
IV. Standard III (A) Loyalty, Prudence and Care
A. II and IV only
B. I, III, and IV only
C. I, II, III, and IV

User Contributed Comments 19

User Comment
yanpz But Joe is violating "Fair Dealing" by giving different clients different price, assuming John is one of his clients...
sexy Surely John is not being independent or objective when there is a personal financial gain out of him dealing with Stein
kuan Fair Dealing focuses on Info dissemination only. Nothing to do with prices.

Independence and Objectivity focues on perks that can sway the analyst behaviour
tengo Perhaps john is selling out of his client's account company A because he needs to sell out of his Company A shares in his personal account and get a higher price. This seems a violation of fair dealing. It depends how you read the questionand interpret it. Kuan has taken a very narrow view
hizmo Fair dealing also applies to allocation of trades.
xtrailer I think Standard I(B) is also violated as members and candidates are not to accept any compensation or consideration which would affect their Independence and Objectivity.
rvenkat i chose all except additional compensation agreements...isn't it under 'duties to the employer'? in which case, we know nothing about employer knowledge..(the act in any case is slimy, but thought it was not a violation of 'additional compensation')
Janey I thought I and III would be violations on Joe's behalf
volkovv I agree with Kuan. The reasons he stated are exactly why I and III are not applicable here.
haosheng Why not III?
dini85 i was sure it didnt violate III...
Only option without III.. A
ossy does Independence and Objectivity apply only to analysts.
Hishy Additional Compensation arrangements relate more to other jobs/positions (e.g. Director position with another company), and Independence and Objectivity is more if you're making a report decision and something would compromise the integrity of that report (e.g. you having a large position in XYZ will violate III if you also write research reports on XYZ).
ChaseF The key for me was that (I) also included Standard III (C) Suitablility. It didn't seem that suitability was violated so A was the only answer left.
bc9115a ChaseF, that's the methodology I used too.
Shaan23 The additional compensation is that we receive lower prices and that needs to be disclosed. Still considered compensation

Also, members of the trust are paying higher fees than normal without benefit --- IIIA violated...

Has nothing to do with Fair dealing which has to do with simulatanoeus dissemination and investment actions and recomendation procedures.

Could see this affecting independency and objectivity but that didnt fit into the answers.
ascruggs92 I is incorrect because, while he violated Fair Dealing, there's no indication the investments weren't suitable for clients. I missed that.

II I didn't get because it didn't explicitly say they had arranged for him to get better prices than his clients. However, that's clearly something he would notice, since he is conducting all the trades, and his decision to continue with the practice is a violation.

III seemed right after first, but there's no indication that he is buying and selling securities without independent and objective decision making.

IV is obvious
prapps AnalystNotes has done great job by not proving any explanation for a question with difficulty level: Hard .
ashish100 ^ yeah

Difficulty level: Difficult
Explanation: Go f yourself
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