Question #31
Reading: Reading 42.3 Standards of Professional Conduct Guidance for Standards III
PDF File: Reading 42.3 Standards of Professional Conduct Guidance for Standards III.pdf
Page: 12
Status: Unattempted
Correct Answer: B
Question
Regarding (1) not voting all client proxies, and (2) using a directed brokerage arrangement, a member would violate the Standards by:
Answer Choices:
A. engaging in neither of these practices
B. using a directed brokerage arrangement
C. not voting all proxies for client stocks
Explanation
Proxies have economic value to the client. To comply with Standard III(A) Loyalty,
Prudence, and Care, the analyst is obligated to vote proxies in an informed and
responsible manner. A cost benefit analysis may show that voting all proxies may not
benefit the client, so voting proxies may not be necessary in all instances. Directed
brokerage occurs when the client requests that a portion of the client's brokerage be used
to purchase services that directly benefit the client. Although this may prevent best
execution, it does not violate the Standards as it was directed by the client, not the
brokerage firm.
(Module 42.4, LOS 42: III(A))