Standard V(C) – Record Retention
Members and candidates must treat all clients fairly and objectively when offering investment research, making investment recommendations, taking investment action, or engaging in other professional activities.
The Code and Standards permit CFA Institute members and candidates to provide more personalized, specialized, or in-depth service to clients who are willing to pay higher fees for premium services, if:
Adam McNarry is the CFO of Astra Capital Advisors (ACA). ACA specializes in corporate advisory and capital raising activities. His client, GreenFarm Ltd., is looking to go public. ACA receives an overwhelming amount of expression of interest from both retail and institutional investors. The new issue is twice oversubscribed. McNarry proceeds to remove all shares allocated to fee-paying family-member accounts. The shares are then prorated among all the clients.
Has McNarry violated Standard III(B) – Fair Dealing?
Solution
The correct answer is B.
McNarry has violated Standard III(B) – Fair Dealing. McNarry should treat all his fee-paying clients equally. In this case, McNarry should not have removed his family members’ allocation in GreenFarm Ltd.
Josephine Clark emails all her clients to inform them about a change in her investment recommendation of Nix Technologies. She then calls her two biggest clients to review her conclusions and respond to any queries.
Would Clark’s actions violate Standard III(B) – Fair Dealing?
Solution
The correct answer is B.
Clark has not violated Standard III(B) – Fair Dealing. Clark disseminated her change in the recommendation to all her clients. Clark can offer personal services to clients that may have a significant amount of assets in the firm. Clark would violate if she failed to disseminate her recommendation to all her clients but a select few.
Nicole Albert is an investment manager at Nobil Inc. Nicole has sent out a recommendation on security to her clients. Before sending out this information, Nicole informed all of her high-net-worth clients of the recommendation. Under the CFA Institute Code and Standards, Nicole’s action:
Solution
The correct answer is A.
Nicole has violated the CFA Institute Code and Standards by giving the high-net-worth clients the recommendation before the other clients. According to Standard III(B) , members and candidates must treat all clients fairly and objectively. Premium services can be offered, but the different service levels are disclosed to all clients.
B is incorrect. Nicole sent the recommendation to all her high-net-worth clients and not all her clients. She violated Standard III(B).
C is incorrect. Despite the high-net-worth clients bringing more value to the firm, Nicole is still violating Standard III(B).