- CFA Exams
- CFA Level I Exam
- Study Session 1. Ethical and Professional Standards
- Reading 3. Guidance for Standards I-VII
- Subject 7. Standard III (A) Loyalty, Prudence, and Care
CFA Practice Question
There are 361 practice questions for this study session.
CFA Practice Question
Kerry Sol is an investment manager who uses client brokerage to purchase research from a broker. Kerry directs all of her equity investing client's brokerage through this broker. The amount paid for the research is reasonable. The research obtained relates to debt securities. These debt securities are not suitable for her equity-investing clients. Has Kerry violated CFA Institute's Standards of Professional Conduct?
A. Yes, since the research obtained is not suitable for her equity investing clients.
B. No, since client brokerage was used to purchase research and the amount paid for research was reasonable.
C. Yes, since client brokerage may not be used to purchase research.
Explanation: The standard has been violated since the research obtained is not suitable for her equity investing clients and therefore her equity investing clients' brokerage cannot be directed to this broker to obtain such research.
User Contributed Comments 10
|rainatt||client brokerage may be used to purchase research suitable.|
|nick1981||One thing I never understand here is that what does it matter if the research is suitable or not if the brokerage house is the cheapest around? If they throw in some research as well, who cares.|
|TonyShen||It doesn't say it is the "cheapest", only reseasonable...|
|sheenalim||i also had the same thought as nick. and if it's reasonable it's good enough. if u had to find the cheapest brokerage available the search costs might outweigh the benefits.|
|sheenalim||ok so it says in the standard:
if the manager uses client brokerage to purchase services that may not benefit the client, but the client brokerage is at 'best price', then as long as the manager discloses this to clients it's ok.
but if the manager pays a higher price because of this, he is violating the duty of loyalty to the client.
in this question i guess reasonable price is ok. but he violated the standards because he did not disclose this to the client.
|DougFunny||I believe that in this question the research received had nothing to do with the client`s portfolio so, it has no value for the client, even if it was purchased at a reasonable price.|
|endurance||Does the situation actually states, that the research is used? In fact no, but we all assume it|
|gill15||So with soft dollars the intended use of the soft dollars has to be kind of pertinent to your clients portfolio. So weird.
Should be just called Kind of Soft Dollars
|rthbardian||So because equity investing clients, a violation because research is about debt, i.e. a mismatch? Just putting what DougFunny is in a different way?|
|Swoods2||Investments are suitable or not. Not research.|