CFA Practice Question

CFA Practice Question

Jurgens is a portfolio manager with an investment firm based in New York. One of her firm's clients has told Jurgens that he will compensate her beyond that provided by her firm on the basis of the capital appreciation of his portfolio each year. Jurgens should ______
A. turn down the additional compensation because it will result in conflicts of interest with other clients' accounts.
B. turn down the additional compensation because it will create undue pressure on her to achieve strong short-term performance.
C. obtain permission from her employer prior to accepting the compensation arrangement.
Explanation: This question pertains to Standard IV (B) - Additional Compensation Arrangements. If Jurgens were to be compensated, based on the account's performance, beyond that provided by her firm, such a practice is not a violation of the Standards, so long as Jurgens discloses the arrangement in writing to her employer and obtains permission from the employer before entering the agreement. Members are not required to receive permission from CFA Institute for such arrangements.

User Contributed Comments 18

User Comment
zAlan7 I think he needs to let his other clients know about this.
linjinfeng Once her employer agreed the compensation, She can enter the contracct
tomlinson34 Couldn't this give her incentive to take on unreasonable risks in pursuit of higher returns? Why isn't this a conflict of interest?
Ali1 and I take it the other clients don't have a say in this arrangement. I'm sure they may find it to be a conflict of interest
julamo If he were buying and selling the public stocks of this client then it would be a conflict of interest. In this case, the client is essentially giving him more commissions if he does well for the client's portfolio. It has nothing to do with other clients.
sbakar This type of arrangement gives the analyst incentives to focus on one client's portfolio return at the detriment of the other clients. Would this be acceptable to you if you were the other client?
ontrack The answer is as per the readings but i do agree if the additional compensation is substantial, it could affect performance of other clients' portfolios due to diverted efforts of the portfolio manager
julescruis I marked a as for me this is a typical case of duties to clients and that every client should be treated the same and that this would create biased behaviour. tough call though
dealsoutlook i chose "a" as well since because of the additional compensation for this particular portfolio, Jurgens would put more time into this one..guess i gotta know this for the exam
surob i have looked through the standard and it says that as long as you get your employer's permission, you are fine.
lazio I thought any action that could result in a possible situation of conflicts of interest ought to be avoided, according to the standards?
capitalpirate avoided or disclosed
MaresaJaden Yes, if your supervisor says it is okay I would assume they are taking into account the amount of time you will give to that client vs. the other clients.
MaximeL actually, it isn't said that the client is asking for any special treatment (time, risk taking, etc.). It's additionnal compensation for the same work. With the discussion with the employer they should find out if there is indeed conflict of interest.
moneyguy Seems like she would give preferential treatment to this client over her others. The firm should not allow such arrangements, in my opinion.
j2krapez Also I thought that you can only accepts additional comp as a reward so as to not create a coi..
nickcoulby Silly question
Dterm Wouldn't this create the appearance of a conflict?
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