Question #39 - Reading 42.3 Standards of Professional Conduct Guidance for Standards III

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: 16

Status: Incorrect

Correct Answer: A

Your Answer: C

Shared Context

- Did Patel violate any CFA Institute Standards of Professional Conduct when she purchased the NetWin stock for Singh's portfolio or for the other clients' portfolios? Singh's portfolio Other portfolios A) No No B) No Yes C) Yes Yes

Question

With respect to the choice of broker, did Patel violate any CFA Institute Standards of Professional Conduct?

Answer Choices:

A. Yes, since Patel is obligated to seek the best possible price and execution for all clients

B. Yes, since Patel failed to properly notify Singh that using TradeRight would lead to higher commissions and opportunity costs

C. No

Explanation

Since Singh directed Patel to use TradeRight, this should be considered client-directed brokerage. While Patel should inform Singh of the implications of that choice, Patel has no option but to follow the client's direction according to Standard III(A)—Loyalty, Prudence, and Care. Singh was fully aware of the fees charged by TradeRight relative to other brokerage firms, but elected to use them anyway. Investment managers are obligated to seek the best price and execution in the absence of client direction. (Module 42.5, LOS 42: III(C))

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