CFA Practice Question

CFA Practice Question

Arvantis works for Quick-time Brokerage. He has not been happy with his employment for some time and recently decided to start his own hedge fund. He started making administrative preparations for setting up the fund while still working for Quick-time Brokerage. He also made contact with a few of his oldest clients and gave them details about his hedge fund. The clients promised to switch accounts once the fund was initiated.

I. Arvantis has violated Standard IV (A) - Duties to Employers (Loyalty) by making preparations to enter a competitive business while still being employed with Quick-ime Brokerage.
II. Arvantis has violated Standard IV (A) - Duties to Employers (Loyalty) by soliciting Quick-time Brokerage's clients while still being employed with Quick-time Brokerage.
III. Arvantis has not violated Standard IV (A).
A. II only.
B. III only.
C. I and II.
Explanation: Standard IV (A) - Duties to Employers (Loyalty) does not preclude a departing employee from making arrangements to enter independent practice prior to leaving current employment, as long as such preparations do not constitute a breach of loyalty toward the employer. However, undertaking any activity that harms the current employer is a violation of IV (A).

User Contributed Comments 7

User Comment
Borsh why not I?
erinelize These ethics questions are so vague. He could've violated the Standard because of I as well if he was making these arrangements on company time (and there is nothing to suggest that he wasn't). You just have to pray that you guess right on the exam..
MaresaJaden You just have to really read the details. It said "made preparations while still employed." This in itself is not a violation. They did not give enough information to determine if it was on his own time or company time.
Mikehuynh So it means that an employee is allowed to make preparations while still employed, or make arrangements with new employers provided that this does not harm their current ones. However, they are not allowed to contact or approach clients.
farhan92 i didnt think he violated IV (A) as telling someone about the fund is not soliciting the client. But the explanation given makes sense as by informing the clients who did move the current employer was harmed.
mlaique Keyword: solicitation
Harneet07 Wouldn't he need some form of written approval to not be in violation of the (A)?
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