CFA Practice Question

CFA Practice Question

Tom Bilford, marketing manager of Bilford Securities Marketing, manages the Internet marketing of small company stocks. He has just signed a contract with Penny Securities to send bulk emails to potential investors highlighting the upside potential of Marvin Shoes - a small fad shoe company that markets its shoes to teenagers. Tom has,
A. violated Standard V (A) - Diligence and Reasonable Basis, and Standard VI (C) - Referral Fees.
B. not violated any standards since he works for a marketing firm, not an investment firm.
C. violated Standard V (A) only.
Explanation: Tom has violated Standard V(A) - Diligence and Reasonable Basis as he has not conducted an independent analysis of the prospects of Marvin Shoes. Furthermore, he has violated Standard VI (C) as he has failed to disclose the referral fee arrangement with Penny Securities in his broadcast emails.

User Contributed Comments 20

User Comment
danlan It's not mentioned that Penny Securities pays Tom for sending bulk emails, so I chose C.
nike It's natural to assume that Penny Securities will not do anything for free.
DAS11 "He has just signed a contract" -- assume payment
jayjunk It does not say that Tom does not disclose in his emails that he has been paid. I have in real life received such emails in which such disclosures have been made. So I chose C.
Birdy101 Do marketing companies, need to analyse each product they promote? Is't a reference to Penny securties needed otherwise it is mispresentation?
chamad Do marketing companies have to comply with CFA institute code of ethics?!!! I tought only financial analysts!!
grezavi Is Tom even a CFA? He is an advertising marketing guy, then we should simply put half of those guys in jail
charliedba it does not matter if he is a CFA or not. His behavior would violate the standard.
JHeld Bottom line; We don't know the details of the contract. Just like all the rest of these questions how do we know what side to assume? It seems like if you errror on the side of caution when details of such are left out, assume the worst and you'll get it right.
dwadd THIS QUESTION IS TERRIBLE. WHEN YOU SEE A COMMERCIAL ON TV DOES THE AD AGENCY HAVE TO TELL YOU THEY WERE PAID.
copus I agree 100% with dwadd. The fact that a contract has been signed does not presuppose the payment of referral fees. Although I am not expert on online marketing, in my opinion such a distribution agreement would involve the payment of a fixed commission and not a referral fee.
cong No evidence suggests that Tom has not conducted adequate reserach for his recommendations
apiccion Guys, the code of ethics describes the world as it should be, not as-it-is.
You need to disclose if you get the referral fee. That's required by the code.
For TV ads, everybody knows it's paid for so there's no need to do so.
pepper apiccion.. it is a marketing firm, everyone knows they get paid to do marketing..
bkballa whoever wrote this question should be shot. I'm kidding...sort of
cslau83 I assumed he signed the contract on behalf of Bilford Securities.... hmm.. tricky..
anele1 Terrible question!! I chose C since there was no mention of payment!
Friso If you receive information from a company called "Securities Marketing," any reasonable recipient should should know the information is most likely biased and paid for by the promoted company and should be evaluated with other sources. This question in essence says no company is ever allowed to make a shiny annual report anymore for its (potential) investors, since it outlooks may not be based on balanced views. Unless Tom was overstating or misrepresenting, I say he didn't violate anything. In any case a confusing question.
nickcoulby Cong, he only manages the internet marketing.. as in, someone else provided him the investment information to market.. nowhere is it suggested he is responsible for the research that would give the stock "upside potential"..
Albireo I chose A and was marked wrong, even though the correct answer is A! Anyone face the same issue?
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