Question #15

of 16 Alpha Asset Management manages portfolios for clients with more than $10 million in assets. Bob Smith, a portfolio manager at Alpha, is planning to leave Alpha to set up company Beta Investment Management, to focus exclusively on clients with less than $10 million in assets. While he is still employed at Alpha, Smith begins to solicit (on his own time) potential clients with less than $10 million in assets – clients that Alpha has previously rejected for being too small. According to the Standards of Professional Conduct IV(A) related to duties to employer, Smith's solicitation of these clients is: A) acceptable as he is not in competition with his current employer. B) unacceptable as he may not engage in any activities to go into business while he is still employed by Alpha. C) unacceptable since the fact the Beta will not be in competition with Alpha is irrelevant. Glenarm Case Study (Refer to CFA Institute Standards of Practice Casebook for details.) Peter Sherman, CFA, has recently joined Glenarm Company after spending 5 years at Pearl Investment Management. He is responsible for identifying potential Latin American investments. Previously, Sherman held jobs as a consultant for many Latin American companies and had plans to continue such consulting jobs without disclosing anything to Glenarm. After resigning, but before leaving his employment at Pearl, Sherman had encouraged Pearl customers to move their accounts to Glenarm. He contacted accounts Pearl had been soliciting for business. He also contacted potential clients that Pearl had rejected in the past as too small or incompatible with the firm's business. Furthermore, he convinced several of Pearl's clients and prospects to hire Glenarm after he joined Glenarm. He also identified materials from Pearl to take with him, such as: 1. Sample marketing presentations he had prepared. 2. Computer program models for stock selection. 3. Research materials on companies he had been following. 4. A list of companies recommended by Sherman for potential investment which were rejected by Pearl. 5. News articles for potential research ideas.