CFA Practice Question

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CFA Practice Question

True or False? If conflicts of interest exist, it is inherently unethical for individual managers, advisors, or mutual fund employees to make money from personal investments.
Correct Answer: False

Although conflicts of interest exist, there is nothing inherently unethical as long as (1) the client is not disadvantaged by the trade, (2) the investment professional does not benefit personally from trades undertaken for clients, and (3) the investment professional complies with applicable regulatory requirements.

User Contributed Comments 6

User Comment
fding i guess it is because "personal investments" is a too general term
Khadria Tricky one but FALSE is correct. Don't presume that the conflict of interest is caused by the member! An example - suppose a member has bought some stocks and after some years that company became his client.
dblueroom I think the key is that not all conflict of interests harms the client, therefore as long as it is properly disclosed. It is not unethical.
NikolaZ Although the false makes sense, the explanation does not to me. For (2) 'the investment professional does not benefit personally...', what if the member has a stake in a stock he wants to trade for his client, and this is disclosed, and trading the stock benefits his client, but in return also ends up benefiting. This action is Pareto efficient and benefits both parties. In this case, the investment professional benefits but does so as a consequence of acting in his clients' interest, nothing wrong with that!
johntan1979 Nothing wrong with the explanation (2). You may benefit professionally, as explained by you beautifully, just not PERSONALLY from your clients' trades.
Teeto if your resolve the conflict in favor of the clients but still make money after that it should be OK.
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