CFA Practice Question

CFA Practice Question

Maria Golino is a financially savvy client of Hector Gomez, a portfolio manager with a small investment firm. Maria recently directed Hector to execute all trades on her behalf with Omega Brokerage. Omega charges higher commissions than most other brokerage firms but in this case, has agreed to provide research to Hector on behalf of Maria. Hector does not object to this and starts directing Maria's trades to Omega.

Hector has
A. violated Standard III (A) -Loyalty, Prudence, and Care.
B. violated Standard VI (C) - Referral Fees.
C. not violated any standards.
Explanation: The practice in which a portfolio manager directs trades to a particular brokerage in exchange for additional goods or services at the behest of the client is known as "directed brokerage." This practice is not in violation of any CFA Institute standards since the portfolio manager is acting on the instructions of his client and the benefits accrue to the client.

User Contributed Comments 3

User Comment
robkaz Shouldn't the manager at least see if the research is good? What if he finds this research useless? Shouldn't he advise his client that she is better off with other broker?
blumonster i was thinking along the line.. that disclosure to the clients abt the additional benefits shld still be done. if upon disclosure, client still wish to direct trades thru the firm, then there will be no violations..
jackwez yes... but that is not one of the options.....
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