Standard IV(B) – Additional Compensa ...
Members and Candidates must:
Emmanuel Oluwo works as an oil and gas analyst at GeoField Consultancy Group. He has been working on a report that attempts to assess the crude oil production capacity of Naija Oil Corporation. His assessment will form part of his updated investment recommendation.
Naija Oil Corporation has recently tapped a significant oil resource on the northwest coast of Nigeria. Oluwo’s report includes his estimate (through a series of calculations) of the expanded production capacity of the newly tapped oil field.
In his conclusion, Oluwo states:
“Based on the increase in the production capacity of 500,000 barrels per day, I recommend that Naija Oil Corp is a strong BUY.”
Has Oluwo violated Standard V(B) – Communication with Clients and Prospective Clients?
Solution
The correct answer is A.
Oluwo has violated Standard V(B) – Communication with Clients and Prospective Clients. Oluwo’s calculation of the increase in production is a quantitative estimate (an opinion) and not fact. Opinions must clearly be distinguished from facts in research reports. Oluwo should have details about his estimation methodology prepared and available on request.
Regis Partners is a fund manager that specializes in large-cap European stocks. One of the key screening criteria is selecting stocks with a minimum market capitalization of EUR 5 billion. The Eurozone’s economic outlook and growth prospects have diminished over the past five years, and Regis has altered the growth rate estimates for several of the firms in its ‘Euro large-cap growth’ fund.
In an attempt to broaden the fund’s investment universe, Regis’s CFO changed the permitted market capitalization to EUR 2.5 billion. Regis CFO ensures that the firm’s marketing and promotional material include the change in the market capitalization criteria and informs all prospective clients about the updated investment process.
Are any of Regis’s CFO actions in conflict with Standard V(B) – Communication with Clients and Prospective Clients?
Solution
The correct answer is B.
To comply with Standard V(B) – Communication with Clients and Prospective Clients, Regis’s CFO must inform all potential and existing clients about the change in the investment process.
Regis’s CFO took appropriate but incomplete measures in communicating the change in the fund’s investment mandate. Communicating the change in the mandate is a necessary step in providing clients the information required to judge the suitability of their investment in Regis’s Euro large-cap growth fund.