Question #30 - 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: 17

Status: Correct

Correct Answer: A

Shared Context

- According to CFA Institute Standards concerning fair dealing, Jones is required to do which of the following? A) Ensure that accounts belonging to her immediate family purchase securities only after other clients have had the chance to buy. B) Disseminate new investment recommendations to all clients at the same time. C) Disclose to all clients whether different levels of service are offered.

Question

When Jones produced the research report on Sunrise Technologies before it went public, she violated:

Answer Choices:

A. Standard V(B): Communication with Clients and Prospective Clients by leaving relevant facts out of the report, but not Standard III(A): Loyalty, Prudence, and Care because the CEO cannot pass his fiduciary duty on to her

B. Standard I(B): Independence and Objectivity because of her obedience to her CEO, and Standard II(A): Material Nonpublic Information because of Karloff’s involvement

C. Standard V(A): Diligence and Reasonable Basis because her research report was not thorough, and Standard I(B): Independence and Objectivity because of her obedience to her CEO

Explanation

Jones' research was not thorough, and her report did leave out salient facts. Thus, she violated Standards V(A) and V(B). Her objectivity was certainly in question, so she violated Standard I(B). She also has a fiduciary duty to the clients regardless of what the boss says, so she violated Standard III(A). No nonpublic information was used in this report, so Standard II(A) was not violated. (Module 42.8, LOS 42: V(A))

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