Hi Guys, Putting here one Ethics question, Please explain the correct answer… Jack Schleifer, CFA, is an analyst for Brown Investment Managers (BIM). Schleifer has recenrly accepted an invitation ro visit the facilities of ChemCo, a producer of chemical compounds used in a variety of indusrries. ChemCo offers ro pay for Schleifer’s accommodations in a penthouse suitc at a luxury hotel and allow Schleifer ro use the firm’s private jet ro rrave! ro its three facilities located in New York, Hong Kong, and London. In addition, ChemCo offers rwo tickets ro a formal high-society dinner in New York and a small desk clock with the ChemCo logo. Schleifer declines to use ChemCo’s corporate jet or ro allow the firm ro pay for his accommodations but accepts the clock and the tickets ro the dinner (which he discloses ro his employer) since he will be able ro market his firm’s mutual funds ro other guests at the dinner. Has Schleifer violated any CFA Institute Standards of Professional Conduct? A. Yes. B. No, since he is using the gifts accepted ro benefit his employer’s interests. C. No, since the gifts he accepted were fully disclosed in writing ro his employer.
I think it’s A. By accepting tickets to the high society dinner (regardless of disclosure) he has violated CFAI Standards. I could be wrong on this one but I think that it could become a conflict of interest if you go to the dinner on another company’s dime which is a violation of the standards. I think about it like this: if ChemCo pays for this dinner, in return they may expect a good report. If you put yourself in a position where your independence may be compromised, you are violating the code. Anyone else agree with me?
It’s either A or C. I think the key here is whether the clock and the dinner could reasonably be expected to interfere with the analyst’s independence and objectivity. I’d go with C. The clock definitely is okay to accept. The dinner is the tricky part. I think as long as he disclosed it to his employer and in any reports he writes he’s okay.
Did someone replace your “r” key with the “t” key?? I think it’s C because of disclosure. Btw, superstitious people would be angry if you gave them a clock for a present.
I copy this question from Schweser Study notes and they are saying correct answer is A and explanation is that violation of Standard I(B) independence and objectivity. They mentioned that Since it is a formal high-society dinner, the tickets are most likely expensive or hard to come and influence his future research in favour of ChemCo. I was also thinking correct answer is C if this dinner doesn’t affect his independence.
Sticking with A, make sure that you remember that you aren’t using this in real-life situations many times. These are all hypothetical and they are black and white. If CFA says expensive tickets may sway your judgment, even if you know that your own personal judgment would not be swayed by these tickets, you have to say it is a violation. Whether or not that is the case in the real world doesn’t make a difference on this exam. I saw someone’s post recently that said something to the extent of “forget what you see analysts do on a daily basis and only think of it from the lens of the CFAI until this exam is over.”
I remember this from the book. The answer is A. You can’t accept any gift that might reasonably affect your independence or objectivity regardless of the reason or if you disclose.
Is disclosing to his employer equates he has obtain permission? I(B) states even though member/candidate should avoid accepting gift that may affect their independence, it also states that member/candidates must disclose the gift so that their employer is able to assess the situation.
revenant the quote you gave is correct. However, it applies for gift from CLIENTS, where standard is more linient since gift from clients can be as part of compensation. Chemco is not a client, but a corporation wanting to have favorable coverage so the bar is set much higher. Agree with job71188 and CzarHC for their arguments --> answer A
Don’t confuse gifts from entities with gifts from clients. If you are getting a gift from a company you are analyzing be more strict with the rule regarding gifts. If the gift is from a client, you disclose it as additional comp so the employer can judge the effect.
I see. So, even if the employer force him to go, it would be a violation of the standard?
The employer can force him to go, but either Schleifer or BIM would have to pay for it to remain within the code and standards.
after all this discussion I guess even if employer force him still it is violation because even in that case his research would not be independent for the investor point of view and it will be biased and we know that clients interest are on first priority than employer of self interest. Am I true ?
Answer is C
NeerajDBA Well, your are touching on a general topic: the grey overlapping area of employee’s freedom to act vs employer’s responsibility. In this area, the CFAI is somewhat vague, and does not have a clear, consistent, explicit framework for candidates to reason, at least in my opinion. It does touch upon it in many areas: responsibility of the supervisors, group research expressing an opinion different from individual team member’s, employee’s action when aware of illegal or at least unethical activities within the firm and outside, conflict of interest,… The following is purely my own conjecture put together. - CFAI seems to acknowledge the limited freedom of action an individual employee has, so it has at many points guides: one should ENCOURAGE firms to (develop procedure, retain dok,whatever…)…, not insisting that one’s firm HAS to have such and such so that the individual can be in conformance with the standard. - It seems to indicate that you try your best to avoid, help others to be aware, do within your power to dissassociate. If forced, make sure to keep your own integrity. Worst case, resign if you don’t think you can keep your integrity. - I have seen examples/cases where the following actions are recommended on the top of my head (not necessary in escalating scale) + get compliance/legal advice. + inform your supervisor. + inform your management + document your own actions and thinking. + inform CFA + inform SEC + disassociate yourself from the acts, ask to be reassigned. If if is serious enough, consider resign. One last word, the standard is an ETHICAL guideline, not hard and fast rules. Just my two cents.