CFA Practice Question

CFA Practice Question

Richard manages pension accounts for CapInvest, Inc. and has recently been offered a position with Honest Capital. A week before leaving CapInvest, Richard asks twelve large clients to close the CapInvest accounts and open new accounts with Honest Capital. In addition, he manages to lure several prospective clients, to whom he had spoken to earlier on behalf of CapInvest, to open accounts with Honest Capital.

Which if the following is true?
A. Richard has violated Standard IV (A) - Loyalty, for soliciting old as well as prospective clients.
B. Richard has violated Standard IV (A) - Loyalty, for soliciting the old clients, not the prospective clients.
C. Richard is allowed to solicit new accounts before he changes his position as long as he informs his new clients of a potential conflict of interest.
Explanation: Richard has not acted solely for his employer's benefit and therefore has violated the employee-employer principle. Richard's duty is to CapInvest as long as he is employed there. The solicitation of current clients and prospective clients is unethical and violates Standard IV (A) - Loyalty.

User Contributed Comments 4

User Comment
humphrey what if solicitation happens after severance of employment relationship?
xjarl If the employment has ended you're allowed to contact any old clients, providing you haven't stolen the client list from your old employer. If you simply know the name of your client and look them up in the phone directory it's perfectly fine.
steved333 It's fine as long as there is no signed agreement with the employer that you won't do that. Of course, if the client just happens to leave the firm, the old employer would never even know, but I wouldn't call that ethical...
Xocrevilo This employment relationship issue is one of the clearest, "black-and-white" issues within the Ethics section: always err on the side of caution.
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