CFA Practice Question

CFA Practice Question

Arbaaz, a CFA Institute member, works for an investment advisory firm, Leon Investments. His friend, Shahzad, recently asked him for some investment recommendations. Arbaaz analyzed Shahzad's portfolio over a weekend and suggested some changes. While he did not accept any remuneration, Shahzad promised him some gifts if his portfolio "performed well." Arbaaz did not inform his employer since he thought he was helping a friend and in any case, the Shahzad's account was extremely small and there were no financial payments. Arbaaz has:
A. violated Standard IV (B), Additional Compensation Arrangements.
B. has not violated Standard IV (B), Additional Compensation Arrangements, because there was no financial remuneration.
C. has not violated Standard IV (B), Additional Compensation Arrangements, because Arbaaz is free to do what he wants on his time as long as it doesn't affect Leon Investments.
Explanation: While Arbaaz did not receive any monetary compensation, there is a possibility of gifts in the future. Standard IV (B) applies even when there is no actual receipt of compensation; what is important is the possibility of future payments in cash or kind. By not obtaining a written permission from his employer before advising Shahzad, Arbaaz violated Standard IV (B).

User Contributed Comments 8

User Comment
NIKKIZ So if I give a little advice to a long-time friend without accepting remuneration and in my own free time, I'm being dishonest to my Employer?
Kunga I think the key point is the promise of gifts if the portfolio does well.

I guess it's implied that the gifts are more substantial than a six-pack of beer or something like that.
tommyguard3 If I advise my best friend on his investments and he decides to give me a bottle of wine as a thank you, on my own time no less this is dishonest? Even if he pays cash it's on my time, and not in competition with my employer. I hate CFA Institute.
arendb I think it is more a matter of principle in this case.
Mikehuynh Lousy question. How come I cannot advise my friend over his portfolio during free time
moneyguy agreed. Thanks for the advice. I'll buy you and your wife dinner sometime. Bam -- lost your job!
petervinh18 I don't know how much protection I am when given an advice to my friend, but I always put a word "in my opinion"
siggarusfigs So if they do not specify the size/amount of the gift, do we just assume it's large? I thought we were allowed to take small gifts?
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