Question #67
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: 28
Status: Unattempted
Correct Answer: B
Question
Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. He places trades for the fund with River City Brokerage. River City provides Calaveccio with soft dollars to purchase research. River City also deals in municipal bonds, some of which Calaveccio holds in his personal portfolio. He periodically uses the soft dollars to request research reports on various small cap stocks and also on the status of the municipal bond market and issues that he holds. These actions are:
Answer Choices:
A. in violation of his fiduciary duties regarding both the small cap research and the municipal bond research
B. not in violation of the Code and Standards
C. in violation of his fiduciary duties regarding the municipal bond research but not so regarding the research on the small cap issues
Explanation
The issue at hand is the member's fiduciary responsibilities in handling "soft dollars"
which are technically the property of the client. Standard III(A), Loyalty, Prudence, and
Care, delineates the member's fiduciary responsibilities with regard to soft dollars. Since
municipal bond research is clearly not relevant to the Small Cap Fund holders, he is clearly
using the soft dollars to obtain research for his personal benefit and is in violation of the
Standard.
(Module 42.4, LOS 42: III(A))