III-A：Loyalty, Prudence, and Care
（1）【IMP】Identifying the Client
- 【IMP】First Country Bank serves as trustee（受托人） for the Miller Company’s pension plan. Miller is the target of a hostile takeover attempt by Newton, Inc. In attempting to ward off Newton, Miller’s managers persuade Julian Wiley, an investment manager at First Country Bank, to purchase Miller common stock in the open market for the employee pension plan. Miller’s officials indicate that such action would be favorably received and would probably result in other accounts being placed with the bank. Although Wiley believes the stock is overvalued and would not ordinarily buy it, he purchases the stock to support Miller’s managers, to maintain Miller’s good favor toward the bank, and to realize additional new business. The heavy stock purchases cause Miller’s market price to rise to such a level that Newton retracts its takeover bid.
- Comment:
- retract：（使）缩回，（使）缩进（爪、触角、舌头等）; 撤回，收回（声明、诺言、意见等）; （使）收起（飞机起落架等）; 变卦，食言; 〈棋〉悔（着）; 〈语〉收舌发（音）
- Standard III(A) requires that a member or candidate, in evaluating a takeover bid, act prudently and solely in the interests of plan participants and beneficiaries. To meet this requirement, a member or candidate must carefully evaluate the long-term prospects of the company against the short-term prospects presented by the takeover offer and by the ability to invest elsewhere.
- In this instance, Wiley, acting on behalf of his employer, which was the trustee for a pension plan, clearly violated Standard III(A). He used the pension plan to perpetuate（延续; 使持续; 使永久化; 使持久化）existing management, perhaps to the detriment of plan participants and the company’s shareholders, and to benefit himself.
- Wiley’s responsibilities to the plan participants and beneficiaries should have taken precedence over any ties of his bank to corporate managers and over his self-interest. Wiley had a duty to examine the takeover offer on its own merits and to make an independent decision.
- The guiding principle is the appropriateness of the investment decision to the pension plan, not whether the decision benefited Wiley or the company that hired him.
- Donna Hensley has been hired by a law firm to testify（作证; 证明; 证实） as an expert witness. Although the testimony（证词; 证据; 证明; 证言; 口供） is intended to represent impartial（公正的; 不偏不倚的; 中立的） advice, she is concerned that her work may have negative consequences for the law firm. If the law firm is Hensley’s client, how does she ensure that her testimony will not violate the required duty of loyalty, prudence, and care to one’s client?
- Comment:
- In this situation, the law firm represents Hensley’s employer and the aspect of “who is the client” is not well defined.
- When acting as an expert witness, Hensley is bound by the standard of independence and objectivity in the same manner as an independent research analyst would be bound.
- Hensley must not let the law firm influence the testimony she provides in the legal proceedings.
- 【IMP】Jon Miller is a mutual fund portfolio manager. The fund is focused on the global financial services sector. Wanda Spears is a private wealth manager in the same city as Miller and is a friend of Miller. At a local CFA Institute society meeting, Spears mentions to Miller that her new client is an investor in Miller’s fund. She states that the two of them now share a responsibility to this client.
Comment:
- Spears’ statement is not totally correct. Because she provides the advisory services to her new client, she alone is bound by the duty of loyalty to this client.
- Miller’s responsibility is to manage the fund according to the investment policy statement of the fund. His actions should not be influenced by the needs of any particular fund investor.
（2）Client Commission Practices
JNI, a successful investment counseling firm, serves as investment manager for the pension plans of several large regionally based companies. Its trading activities generate a significant amount of commission-related business. JNI uses the brokerage and research services of many firms, but most of its trading activity is handled through a large brokerage company, Thompson, Inc., because the executives of the two firms have a close friendship. Thompson’s commission structure is high in comparison with charges for similar brokerage services from other firms. JNI considers Thompson’s research services and execution capabilities average. In exchange for JNI directing its brokerage to Thompson, Thompson absorbs a number of JNI overhead expenses, including those for rent.
Comment:
- JNI executives are breaching their responsibilities by using client brokerage for services that do not benefit JNI clients and by not obtaining best price and best execution for their clients.
- Because JNI executives are not upholding their duty of loyalty, they are violating Standard III(A).
（3）【IMP】Brokerage Arrangements
【IMP】Charlotte Everett, a struggling independent investment adviser, serves as investment manager for the pension plans of several companies. One of her brokers, Scott Company, is close to consummating management agreements with prospective new clients whereby Everett would manage the new client accounts and trade the accounts exclusively through Scott. One of Everett’s existing clients, Crayton Corporation, has directed Everett to place securities transactions for Crayton’s account exclusively through Scott. But to induce Scott to exert efforts to send more new accounts to her, Everett also directs transactions to Scott from other clients without their knowledge.
- Comment:
- consummate：[ˈkɑːnsəmət , ˈkɑːnsəmeɪt] adj. 完美的; 技艺高超的; vt. 使完美; 使完整; (初次)同房; 通过性交使(婚姻或两人的关系)圆满
- Everett has an obligation at all times to seek best price and best execution on all trades.
- Everett may direct new client trades exclusively through Scott Company as long as Everett receives best price and execution on the trades or receives a written statement from new clients that she is _not _to seek best price and execution and that they are aware of the consequence for their accounts.
- Everett may trade other accounts through Scott as a reward for directing clients to Everett only if the accounts receive best price and execution and the practice is disclosed to the accounts.
- Because Everett does not disclose the directed trading, Everett has violated Standard III(A).
- Emilie Rome is a trust officer for Paget Trust Company. Rome’s supervisor is responsible for reviewing Rome’s trust account transactions and her monthly reports of personal stock transactions. Rome has been using Nathan Gray, a broker, almost exclusively for trust account brokerage transactions. When Gray makes a market in stocks, he has been giving Rome a lower price for personal purchases and a higher price for sales than he gives to Rome’s trust accounts and other investors.
Comment:
Lauren Parker, an analyst with Provo Advisors, covers South American equities for her firm. She likes to travel to the markets for which she is responsible and decides to go on a trip to Chile, Argentina, and Brazil. The trip is sponsored by SouthAM, Inc., a research firm with a small broker/dealer affiliate that uses the clearing facilities of a larger New York brokerage house. SouthAM specializes in arranging South American trips for analysts during which they can meet with central bank officials, government ministers, local economists, and senior executives of corporations. SouthAM accepts commission dollars at a ratio of 2 to 1 against the hard-dollar costs of the research fee for the trip. Parker is not sure that SouthAM’s execution is competitive, but without informing her supervisor, she directs the trading desk at Provo to start giving commission business to SouthAM so she can take the trip. SouthAM has conveniently timed the briefing trip to coincide with the beginning of Carnival season, so Parker also decides to spend five days of vacation in Rio de Janeiro at the end of the trip. Parker uses commission dollars to pay for the five days of hotel expenses.
Comment:
- Parker is violating Standard III(A) by not exercising her duty of loyalty to her clients. She should have determined whether the commissions charged by SouthAM are reasonable in relation to the benefit of the research provided by the trip. She also should have determined whether best execution and prices could be received from SouthAM.
- In addition, the five extra days are not part of the research effort because they do not assist in the investment decision making. Thus, the hotel expenses for the five days should not be paid for with client assets.
（5）【IMP】Excessive Trading
Vida Knauss manages the portfolios of a number of high-net-worth individuals. A major part of her investment management fee is based on trading commissions. Knauss engages in extensive trading for each of her clients to ensure that she attains the minimum commission level set by her firm. Although the securities purchased and sold for the clients are appropriate and fall within the acceptable asset classes for the clients, the amount of trading for each account exceeds what is necessary to accomplish the client’s investment objectives.
Comment:
Adam Dill recently joined New Investments Asset Managers. To assist Dill in building a book of clients, both his father and brother opened new fee-paying accounts. Dill followed all the firm’s procedures in noting his relationships with these clients and in developing their investment policy statements. After several years, the number of Dill’s clients has grown, but he still manages the original accounts of his family members. An IPO is coming to market that is a suitable investment for many of his clients, including his brother. Dill does not receive the amount of stock he requested, so to avoid any appearance of a conflict of interest, he does not allocate any shares to his brother’s account.
Comment:
- Dill has violated Standard III(A) because he is not acting for the benefit of his brother’s account as well as his other accounts. The brother’s account is a regular fee-paying account comparable to the accounts of his other clients. By not allocating the shares proportionately across _all _accounts for which he thought the IPO was suitable, Dill is disadvantaging specific clients.
- Dill would have been correct in not allocating shares to his brother’s account if that account was being managed outside the normal fee structure of the firm.
（7）Client Loyalty
After providing client account investment performance to the external-facing departments but prior to it being finalized for release to clients, Teresa Nguyen, an investment performance analyst, notices the reporting system missed a trade. Correcting the omission resulted in a large loss for a client that had previously placed the firm on “watch” for potential termination owing to underperformance in prior periods. Nguyen knows this news is unpleasant but informs the appropriate individuals that the report needs to be updated before releasing it to the client.
Comment:
Baftija Sulejman recently became a candidate in the CFA Program. He is a broker who executes client-directed trades for several high-net-worth individuals. Sulejman does not provide any investment advice and only executes the trading decisions made by clients. He is concerned that the Code and Standards impose a fiduciary duty on him in his dealing with clients and sends an e-mail to the CFA Ethics Helpdesk (ethics@cfainstitute.org) to seek guidance on this issue.
Comment:
- In this instance, Sulejman serves in an execution-only capacity and his duty of loyalty, prudence, and care is centered on the skill and diligence used when executing trades — namely, by seeking best execution and making trades within the parameters set by the clients (instructions on quantity, price, timing, etc.).
- Acting in the best interests of the client dictates that trades are executed on the most favorable terms that can be achieved for the client.
- Given this job function, the requirements of the Code and Standards for loyalty, prudence, and care clearly do not impose a fiduciary duty.
III-B：Fair Dealing
（1）Selective Disclosure
Bradley Ames, a well-known and respected analyst, follows the computer industry. In the course of his research, he finds that a small, relatively unknown company whose shares are traded over the counter（场外交易的，不通过交易所买卖的; (买药)不用处方地; 不凭处方） has just signed significant contracts with some of the companies he follows. After a considerable amount of investigation, Ames decides to write a research report on the small company and recommend purchase of its shares. While the report is being reviewed by the company for factual accuracy, Ames schedules a luncheon with several of his best clients to discuss the company. At the luncheon, he mentions the purchase recommendation scheduled to be sent early the following week to all the firm’s clients.
- Comment:
- luncheon：[ˈlʌntʃən] 午餐，午宴(正式的午餐或正式用语)
- Ames has violated Standard III(B) by disseminating the purchase recommendation to the clients with whom he has lunch a week before the recommendation is sent to all clients.
- Saunders Industrial Waste Management (SIWM) publicly indicates to analysts that it is comfortable with the somewhat disappointing earnings-per-share projection of US$1.16 for the quarter. Bernard Roberts, an analyst at Coffey Investments, is confident that SIWM management has understated the forecasted earnings so that the real announcement will cause an “upside surprise” and boost the price of SIWM stock. The “whisper number” (rumored) estimate based on extensive research and discussed among knowledgeable analysts is higher than US$1.16. Roberts repeats the US$1.16 figure in his research report to all Coffey clients but informally tells his large clients that he expects the earnings per share to be higher, making SIWM a good buy.
Comment:
Spencer Rivers, president of XYZ Corporation, moves his company’s growth-oriented pension fund to a particular bank primarily because of the excellent investment performance achieved by the bank’s commingled fund for the prior five-year period.
- Later, Rivers compares the results of his pension fund with those of the bank’s commingled fund. He is startled to learn that, even though the two accounts have the same investment objectives and similar portfolios, his company’s pension fund has significantly underperformed the bank’s commingled fund. Questioning this result at his next meeting with the pension fund’s manager, Rivers is told that, as a matter of policy, when a new security is placed on the recommended list, Morgan Jackson, the pension fund manager, first purchases the security for the commingled account and then purchases it on a pro rata basis for all other pension fund accounts. Similarly, when a sale is recommended, the security is sold first from the commingled account and then sold on a pro rata basis from all other accounts. Rivers also learns that if the bank cannot get enough shares (especially of hot issues) to be meaningful to all the accounts, its policy is to place the new issues only in the commingled account.
- Seeing that Rivers is neither satisfied nor pleased by the explanation, Jackson quickly adds that nondiscretionary（无酌处权的，无裁量权的） pension accounts and personal trust accounts have a lower priority on purchase and sale recommendations than discretionary pension fund accounts. Furthermore, Jackson states, the company’s pension fund had the opportunity to invest up to 5% in the commingled fund.
- Comment:
- commingle：混合; 掺和; 混杂
- startle：vt. 使惊吓; 使大吃一惊; 使吓一跳 n. 吃惊; 震惊; 惊恐; 惊愕; 惊跳
- The bank’s policy does not treat all customers fairly, and Jackson has violated her duty to her clients by giving priority to the growth-oriented commingled fund over all other funds and to discretionary accounts over nondiscretionary accounts.
- Jackson must execute orders on a systematic basis that is fair to all clients. In addition, trade allocation procedures should be disclosed to all clients when they become clients. Of course, in this case, disclosure of the bank’s policy would not change the fact that the policy is unfair.
- 【IMP】Dominic Morris works for a small regional securities firm. His work consists of corporate finance activities and investing for institutional clients. Arena, Ltd., is planning to go public. The partners have secured rights（担保权） to buy an arena football league franchise and are planning to use the funds from the issue to complete the purchase. Because arena football is the current rage, Morris believes he has a hot issue on his hands. He has quietly negotiated some options for himself for helping convince Arena to do the financing through his securities firm. When he seeks expressions of interest, the institutional buyers oversubscribe（超额订购; 超额认购） the issue. Morris, assuming that the institutions have the financial clout to drive the stock up, then fills all orders (including his own) and decreases the institutional blocks.
- Comment:
- franchise：n. (国家授予的)特别经营权，特许; (公民)选举权; (公司授予的)特许经销权; 获特许权的商业(或服务)机构; vt. 授予(或出售)特许经销权(或经营权)
- clout：n. 影响力; 势力; (用手或硬物的)击，打; vt. (尤指用手)猛击，重打
- Morris has violated Standard III(B) by not treating all customers fairly.
- He should not have taken any shares himself and should have prorated the shares offered among all clients.
- In addition, he should have disclosed to his firm and to his clients that he received options as part of the deal（see Standard VI(A)–Disclosure of Conflicts）.
- 【IMP】Eleanor Preston, the chief investment officer of Porter Williams Investments (PWI), a medium-size money management firm, has been trying to retain a client, Colby Company. Management at Colby, which accounts for almost half of PWI’s revenues, recently told Preston that if the performance of its account did not improve, it would find a new money manager. Shortly after this threat, Preston purchases mortgagebacked securities (MBSs) for several accounts, including Colby’s. Preston is busy with a number of transactions that day, so she fails to allocate the trades immediately or write up the trade tickets. A few days later, when Preston is allocating trades, she notes that some of the MBSs have significantly increased in price and some have dropped. Preston decides to allocate the profitable trades to Colby and spread the losing trades among several other PWI accounts.
- Comment:
- write up：详细写出（所做的事或所说的话）; 把…整理成文
- Preston has violated Standard III(B) by failing to deal fairly with her clients in taking these investment actions.
- Preston should have allocated the trades prior to executing the orders, or she should have had a systematic approach to allocating the trades, such as pro rata, as soon as practical after they were executed.
- Among other things, Preston must disclose to the client that the adviser may act as broker for, receive commissions from, and have a potential conflict of interest regarding both parties in agency cross-transactions. After the disclosure, she should obtain from the client consent authorizing such transactions in advance.
- Paul Rove, performance analyst for Alpha-Beta Investment Management, is describing to the firm’s chief investment officer (CIO) two new reports he would like to develop to assist the firm in meeting its obligations to treat clients fairly. Because many of the firm’s clients have similar investment objectives and portfolios, Rove suggests a report detailing securities owned across several clients and the percentage of the portfolio the security represents. The second report would compare the monthly performance of portfolios with similar strategies. The outliers within each report would be submitted to the CIO for review.
Comment:
- As a performance analyst, Rove likely has little direct contact with clients and thus has limited opportunity to treat clients differently. The recommended reports comply with Standard III(B) while helping the firm conduct after-the-fact reviews of how effectively the firm’s advisers are dealing with their clients’ portfolios.
- Reports that monitor the fair treatment of clients are an important oversight tool to ensure that clients are treated fairly.
（3）【IMP】Additional Services for Select Clients
Jenpin Weng uses e-mail to issue a new recommendation to all his clients. He then calls his three largest institutional clients to discuss the recommendation in detail.
Comment:
- Weng has not violated Standard III(B) because he widely disseminated the recommendation and provided the information to all his clients prior to discussing it with a select few.
- Weng’s largest clients received additional personal service because they presumably（很可能; 大概; 想必是）pay higher fees or because they have a large amount of assets under Weng’s management.
- If Weng had discussed the report with a select group of clients prior to distributing it to all his clients, he would have violated Standard III(B).
（4）Minimum Lot Allocations
Lynn Hampton is a well-respected private wealth manager in her community with a diversified client base. She determines that a new 10-year bond being offered by Healthy Pharmaceuticals is appropriate for five of her clients. Three clients request to purchase US$10,000 each, and the other two request US$50,000 each. The minimum lot size（最小批量） is established at US$5,000, and the issue is oversubscribed at the time of placement. Her firm’s policy is that odd-lot allocations, especially those below the minimum, should be avoided because they may affect the liquidity of the security at the time of sale.
- Hampton is informed she will receive only US$55,000 of the offering for all accounts. Hampton distributes the bond investments as follows: The three accounts that requested US$10,000 are allocated US$5,000 each, and the two accounts that requested US$50,000 are allocated US$20,000 each.
Comment:
- Hampton has not violated Standard III(B), even though the distribution is not on a completely pro rata basis because of the required minimum lot size.
- With the total allocation being significantly below the amount requested, Hampton ensured that each client received at least the minimum lot size of the issue. This approach allowed the clients to efficiently sell the bond later if necessary.
- 有 3 个人本应分配
，但最低 5000 起，因此为其每人分配 5000 后，剩下的两人均分即可。
（5）Excessive Trading
Ling Chan manages the accounts for many pension plans, including the plan of his father’s employer. Chan developed similar but not identical investment policies for each client, so the investment portfolios are rarely the same. To minimize the cost to his father’s pension plan, he intentionally trades more frequently in the accounts of other clients to ensure the required brokerage is incurred to continue receiving free research for use by all the pensions.
Comment:
- Chan is violating Standard III(B) because his trading actions are disadvantaging his clients to enhance a relationship with a preferred client.
- All clients are benefiting from the research being provided and should incur their fair portion of the costs. This does not mean that additional trading should occur if a client has not paid an equal portion of the commission; trading should occur only as required by the strategy.
（6）Limited Social Media Disclosures
Mary Burdette was recently hired by Fundamental Investment Management (FIM) as a junior auto industry analyst. Burdette is expected to expand the social media presence of the firm because she is active with various networks, including Facebook, LinkedIn, and Twitter. Although Burdette’s supervisor, Joe Graf, has never used social media, he encourages Burdette to explore opportunities to increase FIM’s online presence and ability to share content, communicate, and broadcast information to clients. In response to Graf’s encouragement, Burdette is working on a proposal detailing the advantages of getting FIM onto Twitter in addition to launching a company Facebook page.
- As part of her auto industry research for FIM, Burdette is completing a report on the financial impact of Sun Drive Auto Ltd.’s new solar technology for compact automobiles. This research report will be her first for FIM, and she believes Sun Drive’s technology could revolutionize the auto industry. In her excitement, Burdette sends a quick tweet to FIM Twitter followers summarizing her “buy” recommendation for Sun Drive Auto stock.
Comment:
- Burdette has violated Standard III(B) by sending an investment recommendation to a select group of contacts prior to distributing it to all clients.
- Burdette must make sure she has received the appropriate training about FIM’s policies and procedures, including the appropriate business use of personal social media networks before engaging in such activities.
- See Standard IV(C) for guidance related to the duties of the supervisor.
III-C：Suitability
（1）Investment Suitability（4 题）
Caleb Smith, an investment adviser, has two clients: Larry Robertson, 60 years old, and Gabriel Lanai, 40 years old. Both clients earn roughly the same salary, but Robertson has a much higher risk tolerance because he has a large asset base. Robertson is willing to invest part of his assets very aggressively; Lanai wants only to achieve a steady rate of return with low volatility to pay for his children’s education. Smith recommends investing 20% of both portfolios in zero-yield, small-cap, high-technology equity issues.
- Comment:
- In Robertson’s case, the investment may be appropriate because of his financial circumstances and aggressive investment position, but this investment is not suitable for Lanai.
- Smith is violating Standard III(C) by applying Robertson’s investment strategy to Lanai because the two clients’ financial circumstances and objectives differ.
- Jessica McDowell, an investment adviser, suggests to Brian Crosby, a risk-averse client, that covered call options be used in his equity portfolio. The purpose would be to enhance Crosby’s income and partially offset any untimely depreciation in the portfolio’s value should the stock market or other circumstances affect his holdings unfavorably. McDowell educates Crosby about all possible outcomes, including the risk of incurring an added tax liability if a stock rises in price and is called away and, conversely, the risk of his holdings losing protection on the downside if prices drop sharply.
- Comment:
- When determining suitability of an investment, the primary focus should be the characteristics of the client’s entire portfolio, not the characteristics of single securities on an issue-by-issue basis.
- The basic characteristics of the entire portfolio will largely determine whether investment recommendations are taking client factors into account. Therefore, the most important aspects of a particular investment are those that will affect the characteristics of the total portfolio.
- In this case, McDowell properly considers the investment in the context of the entire portfolio and thoroughly explains the investment to the client.
- Samantha Snead, a portfolio manager for Thomas Investment Counsel, Inc., specializes in managing public retirement funds and defined benefit pension plan accounts, all of which have long-term investment objectives. A year ago, Snead’s employer, in an attempt to motivate and retain key investment professionals, introduced a bonus compensation system that rewards portfolio managers on the basis of quarterly performance relative to their peers and to certain benchmark indexes. In an attempt to improve the short-term performance of her accounts, Snead changes her investment strategy and purchases several high-beta stocks for client portfolios. These purchases are seemingly contrary to the clients’ investment policy statements. Following their purchase, an officer of Griffin Corporation, one of Snead’s pension fund clients, asks why Griffin Corporation’s portfolio seems to be dominated by high-beta stocks of companies that often appear among the most actively traded issues. No change in objective or strategy has been recommended by Snead during the year.
- Comment:
- Snead violated Standard III(C) by investing the clients’ assets in high-beta stocks. These high-risk investments are contrary to the longterm risk profile established in the clients’ IPSs. Snead has changed the investment strategy of the clients in an attempt to reap short-term rewards offered by her firm’s new compensation arrangement, not in response to changes in clients’ investment policy statements.
- See also Standard VI(A)–Disclosure of Conflicts.
- Andre Shrub owns and operates Conduit, an investment advisory firm. Prior to opening Conduit, Shrub was an account manager with Elite Investment, a hedge fund managed by his good friend Adam Reed. To attract clients to a new Conduit fund, Shrub offers lower-than-normal management fees. He can do so because the fund consists of two top-performing funds managed by Reed. Given his personal friendship with Reed and the prior performance record of these two funds, Shrub believes this new fund is a winning combination for all parties. Clients quickly invest with Conduit to gain access to the Elite funds. No one is turned away because Conduit is seeking to expand its assets under management.
Comment:
- Shrub has violated Standard III(C) because the risk profile of the new fund may not be suitable for every client.
- As an investment adviser, Shrub needs to establish an investment policy statement for each client and recommend only investments that match each client’s risk and return profile in the IPS. Shrub is required to act as more than a simple sales agent for Elite.
- Although Shrub cannot disobey the direct request of a client to purchase a specific security, he should fully discuss the risks of a planned purchase and provide reasons why it might not be suitable for a client. This requirement may lead members and candidates to decline new customers if those customers’ requested investment decisions are significantly out of line with their stated requirements.
- See also Standard V(A)–Diligence and Reasonable Basis.
（2）IPS Updating
In a regular meeting with client Seth Jones, the portfolio managers at Blue Chip Investment Advisors are careful to allow some time to review his current needs and circumstances. In doing so, they learn that some significant changes have recently taken place in his life. A wealthy uncle left Jones an inheritance that increased his net worth fourfold（四倍的；四重的）, to US$1 million.
Comment:
- The inheritance has significantly increased Jones’s ability (and possibly his willingness) to assume risk and has diminished the average yield required to meet his current income needs.
- Jones’s financial circumstances have definitely changed, so Blue Chip managers must update Jones’s investment policy statement to reflect how his investment objectives have changed. Accordingly, the Blue Chip portfolio managers should consider a somewhat higher equity ratio for his portfolio than was called for by the previous circumstances, and the managers’ specific common stock recommendations might be heavily tilted toward low-yield, growth-oriented issues.
（3）【IMP】Following an Investment Mandate
Louis Perkowski manages a high-income mutual fund. He purchases zero-dividend stock in a financial services company because he believes the stock is undervalued and is in a potential growth industry, which makes it an attractive investment.
Comment:
- A zero-dividend stock does not seem to fit the mandate of the fund that Perkowski is managing.（zero-dividend stock is absolutely not suitable for high-income mutual fund）
- Unless Perkowski’s investment fits within the mandate or is within the realm of allowable investments the fund has made clear in its disclosures, Perkowski has violated Standard III(C).
（4）【IMP】IPS Requirements and Limitations
Max Gubler, chief investment officer of a property/casualty insurance subsidiary of a large financial conglomerate, wants to improve the diversification of the subsidiary’s investment portfolio and increase its returns. The subsidiary’s investment policy statement provides for highly liquid investments, such as large-cap equities and government, supranational, and corporate bonds with a minimum credit rating of AA and maturity of no more than five years. In a recent presentation, a venture capital group offered very attractive prospective returns on some of its private equity funds that provide seed capital to ventures. An exit strategy was already contemplated, but investors would have to observe a minimum three-year lockup period and a subsequent laddered exit option for a maximum of one-third of their shares per year. Gubler does not want to miss this opportunity. After extensive analysis, with the intent to optimize the return on the equity assets within the subsidiary’s current portfolio, he invests 4% in this seed fund, leaving the portfolio’s total equity exposure still well below its upper limit.
Comment:
- supranational：超国家的(指涉及不止一个国家)
- Gubler is violating Standard III(A)–Loyalty, Prudence, and Care as well as Standard III(C).
- His new investment locks up part of the subsidiary’s assets for at least three years and up to as many as five years and possibly beyond. The IPS requires investments in highly liquid investments and describes accepted asset classes; private equity investments with a lockup period certainly do not qualify.
- Even without a lockup period, an asset class with only an occasional, and thus implicitly illiquid, market may not be suitable for the portfolio.
- Although an IPS typically describes objectives and constraints in great detail, the manager must also make every effort to understand the client’s business and circumstances. Doing so should enable the manager to recognize, understand, and discuss with the client other factors that may be or may become material in the investment management process.
（5）【IMP】Submanager and IPS Reviews
Paul Ostrowski’s investment management business has grown significantly over the past couple of years, and some clients want to diversify internationally. Ostrowski decides to find a submanager to handle the expected international investments. Because this will be his first subadviser（副顾问）, Ostrowski uses the CFA Institute model “request for proposal” to design a questionnaire for his search. By his deadline, he receives seven completed questionnaires from a variety of domestic and international firms trying to gain his business. Ostrowski reviews all the applications in detail and decides to select the firm that charges the lowest fees because doing so will have the least impact on his firm’s bottom line.
Comment:
- When selecting an external manager or subadviser, Ostrowski needs to ensure that the new manager’s services are appropriate for his clients. This due diligence includes comparing the risk profile of the clients with the investment strategy of the manager.
- In basing the decision on the fee structure alone, Ostrowski may be violating Standard III(C).
- When clients ask to diversify into international products, it is an appropriate time to review and update the clients’ IPSs. Ostrowski’s review may determine that the risk of international investments modifies the risk profiles of the clients or does not represent an appropriate investment.
- See also Standard V(A)–Diligence and Reasonable Basis for further discussion of the review process needed in selecting appropriate submanagers.
III-D：Performance Presentation
（1）Performance Calculation（5 题）
Kyle Taylor of Taylor Trust Company, noting the performance of Taylor’s common trust fund for the past two years, states in a brochure sent to his potential clients, “You can expect steady 25% annual compound growth of the value of your investments over the year.” Taylor Trust’s common trust fund did increase at the rate of 25% per year for the past year, which mirrored the increase of the entire market. The fund has never averaged that growth for more than one year, however, and the average rate of growth of all of its trust accounts for five years is 5% per year.
- Comment:
- Taylor’s brochure is in violation of Standard III(D).
- Taylor should have disclosed that the 25% growth occurred only in one year.
- Additionally, Taylor did not include client accounts other than those in the firm’s common trust fund. A general claim of firm performance should take into account the performance of all categories of accounts.
- Finally, by stating that clients can expect a steady 25% annual compound growth rate, Taylor is also violating Standard I(C)–Misrepresentation, which prohibits assurances or guarantees regarding an investment.
- Anna Judd, a senior partner of Alexander Capital Management, circulates a performance report for the capital appreciation accounts for the years 1988 through 2004. The firm claims compliance with the GIPS standards. Returns are not calculated in accordance with the requirements of the GIPS standards, however, because the composites are not asset weighted.
- Comment:
- Judd is in violation of Standard III(D).
- When claiming compliance with the GIPS standards, firms must meet all of the requirements, make mandatory disclosures, and meet any other requirements that apply to that firm’s specific situation.
- Judd’s violation is not from any misuse of the data but from a false claim of GIPS compliance.
- In a presentation prepared for prospective clients, William Kilmer shows the rates of return realized over a five-year period by a “composite” of his firm’s discretionary accounts that have a “balanced” objective. This composite, however, consisted of only a few of the accounts that met the balanced criterion set by the firm, excluded accounts under a certain asset level without disclosing the fact of their exclusion, and included accounts that did not have the balanced mandate because those accounts would boost the investment results. In addition, to achieve better results, Kilmer manipulated the narrow range of accounts included in the composite by changing the accounts that made up the composite over time.
- Comment:
- Kilmer violated Standard III(D) by misrepresenting the facts in the promotional material sent to prospective clients, distorting his firm’s performance record, and failing to include disclosures that would have clarified the presentation.
- While developing a new reporting package for existing clients, Alisha Singh, a performance analyst, discovers that her company’s new system automatically calculates both time-weighted and money-weighted returns. She asks the head of client services and retention which value would be preferred given that the firm has various investment strategies that include bonds, equities, securities without leverage, and alternatives. Singh is told not to label the return value so that the firm may show whichever value is greatest for the period.
- Comment:
- Following these instructions would lead to Singh violating Standard III(D).
- In reporting inconsistent return values, Singh would not be providing complete information to the firm’s clients.
- Full information is provided when clients have sufficient information to judge the performance generated by the firm.
- Richmond Equity Investors manages a long–short equity fund in which clients can trade once a week (on Fridays). For transparency reasons, a daily net asset value of the fund is calculated by Richmond. The monthly fact sheets of the fund report month-to-date and year-to-date performance. Richmond publishes the performance based on the higher of the last trading day of the month (typically, not the last business day) or the last business day of the month as determined by Richmond. The fact sheet mentions only that the data are as of the end of the month, without giving the exact date. Maggie Clark, the investment performance analyst in charge of the calculations, is concerned about the frequent changes and asks her supervisor whether they are appropriate.
Comment:
Aaron McCoy is vice president and managing partner of the equity investment group of Mastermind Financial Advisors, a new business. Mastermind recruited McCoy because he had a proven six-year track record with G&P Financial. In developing Mastermind’s advertising and marketing campaign, McCoy prepares an advertisement that includes the equity investment performance he achieved at G&P Financial. The advertisement for Mastermind does not identify the equity performance as being earned while at G&P. The advertisement is distributed to existing clients and prospective clients of Mastermind.
- Comment:
- McCoy has violated Standard III(D) by distributing an advertisement that contains material misrepresentations about the historical performance of Mastermind.
- Standard III(D) requires that members and candidates make every reasonable effort to ensure that performance information is a fair, accurate, and complete representation of an individual’s or firm’s performance. As a general matter, this standard does not prohibit showing past performance of funds managed at a prior firm as part of a performance track record as long as showing that record is accompanied by appropriate disclosures about where the performance took place and the person’s specific role in achieving that performance.
- If McCoy chooses to use his past performance from G&P in Mastermind’s advertising, he should make full disclosure of the source of the historical performance.
- Jed Davis has developed a mutual fund selection product based on historical information from the 1990–95 period. Davis tested his methodology by applying it retroactively to data from the 1996–2003 period, thus producing simulated performance results for those years. In January 2004, Davis’s employer decided to offer the product and Davis began promoting it through trade journal advertisements and direct dissemination to clients. The advertisements included the performance results for the 1996–2003 period but did not indicate that the results were simulated.
Comment:
- retroactive：有追溯效力的
- Davis violated Standard III(D) by failing to clearly identify simulated performance results.
- Standard III(D) prohibits members and candidates from making any statements that misrepresent the performance achieved by them or their firms and requires members and candidates to make every reasonable effort to ensure that performance information presented to clients is fair, accurate, and complete.
- Use of simulated results should be accompanied by full disclosure as to the source of the performance data, including the fact that the results from 1995 through 2003 were the result of applying the model retroactively to that time period.
（3）Performance Attribution Changes
Art Purell is reviewing the quarterly performance attribution reports for distribution to clients. Purell works for an investment management firm with a bottom-up, fundamentals-driven investment process that seeks to add value through stock selection. The attribution methodology currently compares each stock with its sector. The attribution report indicates that the value added this quarter came from asset allocation and that stock selection contributed negatively to the calculated return.
- Through running several different scenarios, Purell discovers that calculating attribution by comparing each stock with its industry and then rolling the effect to the sector level improves the appearance of the manager’s stock selection activities.
- Because the firm defines the attribution terms and the results better reflect the stated strategy, Purell recommends that the client reports should use the revised methodology.
Comment:
- Modifying the attribution methodology without proper notifications to clients would fail to meet the requirements of Standard III(D).
- Purrell’s recommendation is being done solely for the interest of the firm to improve its perceived ability to meet the stated investment strategy.
- Such changes are unfair to clients and obscure the facts regarding the firm’s abilities.
- Had Purell believed the new methodology offered improvements to the original model, then he would have needed to report the results of both calculations to the client.
- The report should also include the reasons why the new methodology is preferred, which would allow the client to make a meaningful comparison to prior results and provide a basis for comparing future attributions.
- obscure：
Sarah Connor, a financial analyst employed by Johnson Investment Counselors, Inc., provides investment advice to the trustees of City Medical Center. The trustees have given her a number of internal reports concerning City Medical’s needs for physical plant renovation and expansion. They have asked Connor to recommend investments that would generate capital appreciation in endowment funds（资助基金; 捐赠基金; 捐助基金; 大学捐赠基金） to meet projected capital expenditures. Connor is approached by a local businessman, Thomas Kasey, who is considering a substantial contribution either to City Medical Center or to another local hospital. Kasey wants to find out the building plans of both institutions before making a decision, but he does not want to speak to the trustees.
Comment:
- The trustees gave Connor the internal reports so she could advise them on how to manage their endowment funds. Because the information in the reports is clearly both confidential and within the scope of the confidential relationship, Standard III(E) requires that Connor refuse to divulge information to Kasey.
Lynn Moody is an investment officer at the Lester Trust Company. She has an advisory customer who has talked to her about giving approximately US$50,000 to charity to reduce her income taxes. Moody is also treasurer of the Home for Indigent Widows (HIW), which is planning its annual giving campaign. HIW hopes to expand its list of prospects, particularly those capable of substantial gifts. Moody recommends that HIW’s vice president for corporate gifts call on her customer and ask for a donation in the US$50,000 range.
Comment:
Government officials approach Casey Samuel, the portfolio manager for Garcia Company’s pension plan, to examine pension fund records. They tell her that Garcia’s corporate tax returns are being audited and the pension fund is being reviewed. Two days earlier, Samuel had learned in a regular investment review with Garcia officers that potentially excessive and improper charges were being made to the pension plan by Garcia. Samuel consults her employer’s general counsel and is advised that Garcia has probably violated tax and fiduciary regulations and laws.
- Comment:
- Samuel should inform her supervisor of these activities, and her employer should take steps, with Garcia, to remedy the violations. If that approach is not successful, Samuel and her employer should seek advice of legal counsel to determine the appropriate steps to be taken.
- Samuel may well have a duty to disclose the evidence she has of the continuing legal violations and to resign as asset manager for Garcia.
- David Bradford manages money for a family-owned real estate development corporation. He also manages the individual portfolios of several of the family members and officers of the corporation, including the chief financial officer (CFO). Based on the financial records of the corporation and some questionable practices of the CFO that Bradford has observed, Bradford believes that the CFO is embezzling money from the corporation and putting it into his personal investment account.
Comment:
Lynn Moody is an investment officer at the Lester Trust Company (LTC). She has stewardship of a significant number of individually managed taxable accounts. In addition to receiving quarterly written reports, about a dozen high-net-worth individuals have indicated to Moody a willingness to receive communications about overall economic and financial market outlooks directly from her by way of a social media platform. Under the direction of her firm’s technology and compliance departments, she established a new group page on an existing social media platform specifically for her clients. In the instructions provided to clients, Moody asked them to “join” the group so they may be granted access to the posted content. The instructions also advised clients that all comments posted would be available to the public and thus the platform was not an appropriate method for communicating personal or confidential information.
- Six months later, in early January, Moody posted LTC’s year-end “Market Outlook.” The report outlined a new asset allocation strategy that the firm is adding to its recommendations in the new year. Moody introduced the publication with a note informing her clients that she would be discussing the changes with them individually in their upcoming meetings.
- One of Moody’s clients responded directly on the group page that his family recently experienced a major change in their financial profile. The client described highly personal and confidential details of the event. Unfortunately, all clients that were part of the group were also able to read the detailed posting until Moody was able to have the comment removed.
- Comment:
- stewardship：管理; 看管; 组织工作
- Moody has taken reasonable steps for protecting the confidentiality of client information while using the social media platform. She provided instructions clarifying that all information posted to the site would be publically viewable to all group members and warned against using this method for communicating confidential information. The accidental disclosure of confidential information by a client is not under Moody’s control.
- Her actions to remove the information promptly once she became aware further align with Standard III(E). In understanding the potential sensitivity clients express surrounding the confidentiality of personal information, this event highlights a need for further training. Moody might advocate for additional warnings or controls for clients when they consider using social media platforms for two-way communications.
若有收获，就点个赞吧
0 人点赞
