According to the Standards of Practice Handbook, how frequently should managers gather information on clientcircumstances, occupation, investment objectives and risk tolerances?
Answer(s): B
Under Standard IV (B.2), members have a responsibility to consider carefully the needs, circumstances and objectives of the client when determining the appropriateness of a given investment action. In order to provide sound advice, members should gather information on client circumstances, occupation, investment objectives and risk tolerances at the inception of any client relationship and such an inquiry should be repeated at least annually. This will ensure that investment recommendations take into account the diversity and changing nature of portfolio and client characteristics.
Victor Lazquez is an analyst with Amro Investments and follows the optical instrument manufacturers. In this capacity, he has learnt a few trade secrets pertaining to a leading edge firm, Fibroptica. Recently, he was approached by Fibroptica's competitor, Lensmakers Inc., who offered him a 3 month project on the optical industry practices. Victor realizes that such a project could reveal Fibroptica's trade secrets indirectly. However, he decides he will be very careful and accepts Lensmakers' offer. If he does not inform his employer about this project, he will
Answer(s): D
Victor's knowledge about the trade secrets have arisen in course of his employment with Amro. As such, he has an obligation to get written permission from Amro before he can accept any outside projects. Note that if such a project had been in direct competition with Amro's business, Victor would also have violated Standard III (B) - Duty to the Employer.
"Prohibited transactions" are discussed in Standard IV (B.4), Priority of Transactions. Which of the following is NOT suggested as a firm policy?
Answer(s): A
Under the compliance procedures for Standard IV (B.4), members and their firms should clearly define prohibited transactions so that employees completely understand their obligations to clients and their employer.Participation by investment personnel in equity or equity-based IPOs should be restricted. Also, firm procedures should prevent managers or employees from initiating trades in a security for which their firms have a pending buy or sell order within a 24-hour period. Firms must determine specific requirements relating to such blackout periods. All individuals who are involved in the investment decisionmaking process should be subject to the same restricted period.
Anabella Marconi is a junior industry analyst with Trackstar Blue, an investment advisory service firm. She has been assigned to follow 3 different firms in the telecommunication industry and reports directly to the senior manager, Constantine Naples. Constantine manages 9 other analysts and has to frequently visit Trackstar's other offices around the country. Recently, Anabella received a "friendly tip" from her friend, Socorro Shue, who works for Quicktel Com, one of the firms that Anabella is following. Socorro informed Anabella about an ultra- fast broadband channel that was about to be released by Quicktel. The channel had the potential to catapult Quicktel from the minor league to competing with national telecom giants. Anabella quickly prepared a memo for Constantine advising him of her change in the recommendation on Quicktel from hold to buy. Constantine briefly discussed the reasons with her and asked her to circulate the memo amongst the portfolio managers. Shortly thereafter, he left for San Francisco for a 10-day business trip. Anabella conferred with the portfolio managers, who then bought a substantial stake in Quicktel in the open market.
Answer(s): C
By using a "friendly tip" from an insider in her recommendation, Anabella has violated Standard V (A) - Prohibition against Use of Non-Public Information. Note that due to this, she is also in violation of Standard I - Fundamental Responsibilities and Standard II (B) - Professional Misconduct (In general, any violation of the laws of a regulatory or governmental body will automatically trigger an infringement of these two laws).However, since she does not handle any client accounts, she is not in a position to violate Standard IV (B.3) - Fair Dealing. The portfolio managers of Trackstar violate Standard IV (B.3) if they give preferential treatment to some of their clients while using the investment recommendation. Constantine, in spreading himself too thin to be able to effectively manage his subordinates and not checking to see if Anabella was violating any securities laws (insider trading in this case) is in violation of Standard III (E) - Responsibilities of Supervisors. In fact, he can be held criminally accountable for not curbing insider trading in his group through sheer negligence.
If senior managers are unwilling to permit dissemination of adverse opinions about a particular corporate client,according to Standard IV (A.3), you should attempt to put that corporate client on a ________.
To avoid violations of Standard IV (A.3), one of the procedures members can enact is to create a restricted list.If senior managers are unwilling to permit dissemination of adverse opinions about a particular corporate client, then the firm should remove the controversial company from the research universe and put it on a restricted list so that the firm disseminates only factual information about the company.
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