Question #14 - Reading 42.5 Standards of Professional Conduct Guidance for Standards V

Reading: Reading 42.5 Standards of Professional Conduct Guidance for Standards V

PDF File: Reading 42.5 Standards of Professional Conduct Guidance for Standards V.pdf

Page: 9

Status: Unattempted

Correct Answer: A

Shared Context

- With regard to his coverage of HighLife stock, Singh: A) did not violate the Standards for reasonable basis or research reports. B) violated the research reports Standard because he failed to differentiate between facts and opinions. C) violated the reasonable basis Standard by downgrading a stock because it missed one quarterly earnings estimate.

Question

After Singh changed his investment recommendation for HighLife from a "buy" to a "hold," he violated:

Answer Choices:

A. Standard I(C)—Misrepresentation by not exercising diligence and thoroughness in his research

B. Standard III(B)—Fair Dealing by not telling clients about the downgrade of HighLife in the wake of his promise to downgrade the stock if it missed estimates

C. Standard V(A)—Loyalty, Prudence, and Care by not exercising reasonable care and prudent judgment in his research

Explanation

A change in stock rating is always material, and must always be disclosed to clients. Thus, Singh violated Standard III(B). Singh did not violate a fiduciary duty to his clients because he did not put anyone's interest above theirs. As an analyst, Singh's job is to assess the appeal of an investment, not make investment decisions for individual accounts. As such, he did not violate Standard III(C); Standard I(C) relates to misrepresenting qualifications or guaranteeing investment returns, and is not relevant to this situation.

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