CFA Practice Question

CFA Practice Question

Fran Boilermachher is an analyst for Pricey Securities. She routinely reveals the findings of her reports in the weekly meeting of internal analysts and portfolio managers. Her report goes out to the clients a few days later with the most important clients being faxed a summary.
A. Fran has upheld the Code and Standards.
B. Fran has violated Standard III (B) - Fair Dealing because she selectively informs her best clients.
C. Fran has violated Standard III (B) - Fair Dealing because she selectively informs her best clients and passes along her conclusions to portfolio managers before dissemination of the report.
Explanation: By selectively disseminating her report she puts some clients at a disadvantage. By also revealing her findings to a group of internal portfolio managers without clear instructions and safeguards to prevent preemptive trading by them, she has violated the standard on fair dealing.

User Contributed Comments 14

User Comment
jayjunk C says "portfolio managers", that is people who take positions in stocks. So it seems that these people will certainly trade on the basis of what Fran tells them (before she tells her clients).
krisc Isn't it possible that those few clients were paying a higher fee getting better treatment????
Dinosaur what about if they are portfolio managers in her firm and they combine research efforts for their clients? that's how i read it anyway. why would she tell other portfolio managers about her work before her own clients?
ElenaStep I understand from the question that she faxes the details to some clients at the time when the report goes to all clients so that the recommendation is available to everyone at the same time, but some clients paying higher fees receive a fax copy as well. In this case, higher paying clients just receive a different level of service, which is not a violation. Any thoughts?
yongsl88 The fax summary is an addition to the report which has been disseminated to all
cjpatel Bingo Elena.. its perfectly allright to give a premium service to a group of clients. And the question stem clearly says tht the recommendation is sent to all clients. NO VIOLATION HERE.
jpducros So where is the violation ? With the group of portfolio managers ? Why would we assume that she didn't give clear instruction not to trade on the information given ?
GBolt93 Yeah I was thinking the same as Elena. Also doesn't fair dealing refer only to clients and not people in the same company? Doesn't seem strange to go over research findings with other analysts before disseminating to clients.
nickcoulby This question serves the purpose of ensuring that nobody passes ethics with 100%.
harrybay I agree with Nick.
harrybay And why would it be the analyst's job to prevent preemptive trading? Can't the portfolio managers take care of themselves? Or someone more senior in charge of compliance?
sunday128 I would believe the portfolio managers would have been working along side her and they are all just sitting in the meeting reporting their findings... And the fact that they mentioned "Internal Analyst" would mean they are of the same group of people working together and not their paying clients (inclusive of the managers).
Znanje35 "important clients" does not equate to paying higher fees. All clients should be treated in a fair manner, regardless of their "importance"
ctschro i agree w elena here.
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