According to the Standard on independence and objectivity, members and candidates:
A. may accept gifts or bonuses from clients.
B. may not accept compensation from an issuer of securities in return for
producing research on those securities.
C. should consider credit ratings issued by recognized agencies to be objective
measures of credit quality.
Hey guyz, I have a query regarding the above question. From what I have read in the textbook, the best practice for a member or candidate is to not accept gifts or benefits from clients as it could hamper or influence their independence and objectivity about the investment decision. Here, but the correct answer marked is option A. Could someone give me a convincing answer why correct answer is option A?
Which of the following statements about the Standard on misconduct is most
accurate?
A. Misconduct applies only to a member or candidate’s professional activities.
B. Neglecting to perform due diligence when required is an example of
misconduct.
C. A member or candidate commits misconduct by engaging in any illegal
activity.
Shouldn’t the correct answer be option A? It is the definition of standard of misconduct. Since misconduct applies to only professional activities and not personal activities such as civil disobedience. Option B could be second best answer. What do you guyz think?
It’s been a while since I read Ethics material but I’ll give it a go and some other members can add on.
For first question, accepting gifts from client is okay since it is assumed you are already in compensation-involving relationship. As long as it does not create conflict or influence you (which the question does not specify) and you get approval from your employer beforehand in a clear manner, and the gift is not overly expensive. Don’t confuse receiving a gift from a client from gifts given by entities that seek to influence your actions.
For second question, I would have chosen B by elimination since A and C are similar. C is obviously incorrect and anything illegal (outside of member’s professional activities) is considered a misconduct. Civil disobedience is ok but we’re talking something way more serious and it would still be a misconduct although it may be outside professional activities. Also, it states in the guideline that B is indeed a misconduct.
It’s certainly OK to accept gifts: a client can give you a baseball cap and that’s fine. What matters is whether the gift is substantial enough to impair your Independence and Objectivity.
CFA Institute used to have a threshold of USD100: gifts below that amount were OK, gifts above that amount weren’t. They’ve since dropped the exact dollar limit, but what remains is that if it’s inconsequential it’s OK, if it’s consequential it’s not.
CFA Institute will not ask you to define the dividing line; they’ll either give you a baseball cap (OK) or a week’s ski vacation in Aspen (not OK). The question is what to do when you’re on one side of the line and what to do when you’re on the other, not where, exactly, the line is.
Answer A is certainly not correct: misconduct can apply to you personal conduct as well as your professional conduct.
For example, if you have a (personal) reputation as a liar, or a lush, that could lead to a misconduct violation, even if it cannot be proven that you’ve lied professionally, or transacted business whilst drunk.
Similarly, answer C is not correct: you can engage in civil disobedience without violating the misconduct Standard.