Ethics Defined
Many professions define a code of ethics aimed at outlining cultural values within... Read More
Standard III(B) – Fair Dealing indicates that CFA members must take advice and/or take action with all clients in a reasonable and objective manner.
Standard III(B) – Fair Dealing urges members to treat all parties fairly to uphold the profession’s integrity. It is not uncommon for an investment advisor to favor one client over another. This may manifest itself in actions related to response time for advice or perhaps the quality of services provided.
The term “fair” implies that a member must not discriminate in relation to advice or action for individual clients. Although members may differentiate service to clients based on client parameters or individual needs, one is not to differentiate service in a way that will put any client at a disadvantage. For example, an analyst may disseminate an investment recommendation to a client (or group) while a firm is still reviewing the recommendation for accuracy. Even if it is assumed that the firm will approve an analyst’s report/recommendation, the early distribution to some clients before others put the latter group at a potential disadvantage. Therefore, it is a violation of Standard III(B) – Fair Dealing.
To avoid violating Standard III(B) – Fair Dealing, a firm should make recommendations simultaneously to all clients who have expressed an interest in a particular type of security.
Furthermore, disclosure to clients of the process by which investments are allocated will allow clients to assess the fairness of said allocations. Similarly, disclosure of levels of service, fee-based or non-fee-based, should be made to all clients. Varying levels of service should not be offered to some clients but not others.
Question
David Roberts just received approval from his firm to publish a report on Okala, Inc. in which he recommends a strong “sell” based on current reporting and projected product releases. Roberts sends an email to his clients indicating he recommends the sale of Okala. He attaches his analysis to back up the message and requests that clients call him should they have a need for further information. After sending the email, Roberts calls a handful of major clients to personally discuss Okala, Inc. According to Standard III(B) – Fair Dealing:
- Roberts is in violation of Standard III(B) – Fair Dealing because he called some but not all clients.
- Roberts is in violation of Standard I(B) – Independence and Objectivity based on his partiality toward some clients over others.
- Roberts is not in violation of the Code of Standards.
Solution
The correct answer is C.
Roberts is not in violation because he publicized information to all clients simultaneously via email. It is ethical to provide premium services (i.e., personalized advice via telephone contact) for a fee. Violation of Standard I(B) – Independence and Objectivity is irrelevant to this situation because it discusses the objectivity of analysis and recommendation rather than the objectivity of client contacts.
Reading 3 LOS 3a
demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity
Reading 3 LOS 3b
distinguish between conduct that conforms to the Code and Standards and conduct that violates the Code and Standards
Reading 3 LOS 3c
recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct