To inform Rayne sales agents of their responsibilities under the OAM agency agreement, Mutini holds a meeting with the agents to discuss the financial regulations of South Africa and the Code and Standards. To conclude the meeting, Mutini describes OAM’s annual competition among its sales agents, in which the winner is determined by the value of products sold (assets under management), fees generated, and the number of new clients brought in. The competition prize is an all-expense-paid two-week holiday for two to Mauritius. Mutini advises the staff that they should concentrate their sales efforts on OAM’s front-end load funds because they earn the highest fees. She adds that staff should not disclose this competition to clients.
By participating in OAM’s annual competition, Rayne employees least likely violate which of the following CFA Institute Standards of Professional Conduct?
- Additional Compensation Arrangements
- Independence and Objectivity
- Misrepresentation
Solution
Solution
A is correct. Standard IV(B)–Additional Compensation Arrangements states that members and candidates must not accept gifts, benefits, compensation, or consideration that competes with or might reasonably be expected to create a conflict of interest with their employer’s interests. In this case, holding a competition to encourage sales is unlikely to cause a conflict of interest with the employer’s interests. But by not disclosing the competition details, the sales agents are likely to misrepresent why they are making the recommendation to a client to buy high-fee, front-end-load financial products, so the sales agents would be in violation of Standard I(C)–Misrepresentation. In addition, by selling only high-fee, front-end-load products in the hopes of winning a competition without consideration of the client’s needs compromises the agents’ independence and objectivity, thus violating Standard I(B)–Independence and Objectivity.
B is incorrect because Standard I(B)–Independence and Objectivity requires members and candidates to use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities. Members and candidates must not offer, solicit, or accept any gift, benefit compensation, or consideration that reasonably could be expected to compromise their own independence and objectivity. By selling only high-fee, front-end-load products in the hopes of winning a competition (accepting a gift, benefit, or compensation) without consideration of the client’s needs compromises their independence and objectivity.
C is incorrect because members and candidates must not knowingly make any misrepresentation relating to investment analysis, recommendation, or other professional activities. By not disclosing the competition details, the sales agent misrepresents why he is making the recommendation to his client to buy high-fee, front-end-load financial products.
Is this even legit? All of them are violations, actually, including A!!!