CFA Practice Question

CFA Practice Question

When complying with Standard III (B) - Fair Dealing, there are certain points one should be sure to address when establishing compliance procedures. Which of the following points is NOT mentioned in the Standards of Practice Handbook?
A. Disclose levels of service.
B. Establish control over trading activity.
C. Be flexible on the time frame between decision and dissemination.
Explanation: Members have an obligation to ensure that their firms establish compliance procedures requiring all employees who disseminate investment recommendations or actions to treat clients fairly. The number of people privy to an investment recommendation should be limited. The amount of time that lapses between the decision and the dissemination of the recommendation should be shortened. Guidelines must be established to prohibit persons who have prior knowledge from discussing a pending recommendation. Trading activities should be monitored and controlled. Procedures should be established to determine whether a change in an investment recommendation is considered material. The organization should disclose to firms whether or not it offers two or more levels of service to clients for the same or different fees.

User Contributed Comments 7

User Comment
shasha levels of service: different service fees
swift does that mean its ok to favour one client over another if they're paying more (in a predisclosed agreement?)
sheary No. You can provide different types of services based on fees they pay, but you cannot favor clients based on fees. For example, if you are instructed to buy shares for two clients, you can execute orders for the more-fee paying client first.
jackwez I think this more along the lines of I pay ABC firm for my brokerage fees.... where ABC firm may also have an passive investment advisor and an active investment advisor... just because ABC issues a new report does not mean that they need to execute trades for the passive advisor clients or the brokerage clients..... or at least thats how I look at levels of service to remember this in the future.
apiccion Given a large amount of money under management, imagine if one client was treated favourably and given precedence in all market transactions. Say the portfolio manager decided to buy stock X @ $1.00 for a variety of clients. The favoured client would get the best price ($1.00) while the act of purchasing would drive the price of the stock up (say to $1.05) and screw everyone at the end of the queue!
ashish100 I think sheary made a typo up there.

You CANNOT execute orders for the "more-fee paying" clients first.

Either that's a typo, or he/she is just wrong and confusing the f outta other people.
ashish100 A just means you have at least tell the clients about all of the services they offer.

If you offer client A all of the different services regardless of what they picked and not let client B know about them, you're in violation my friend.
You need to log in first to add your comment.