QUESTION: 145

Andrea, a portfolio manager for XYZ Investment Management Company, a registered investment organization that advises investment companies and private accounts, was promoted to that position three years ago. Bates, her supervisor, is responsible for reviewing Andrea's portfolio account transactions and her required monthly reports of personal stock transactions. Andrea has been using Jonelli, a broker, almost exclusively for portfolio account brokerage transactions. For securities in which Jonelli's firm makes a market, Jonelli has been giving Andrea lower prices for personal purchases and higher prices for personal sales than Jonelli gives to Andrea's portfolio accounts and other investors. Andrea has been filing monthly reports with Bates only for those months in which she has no personal transactions, which is about every fourth month. Which of the following applies/ apply?

Andrea violated the Code and Standards in that she failed to disclose to her employer her personal transactions.
II. Andrea violated the Code and Standards by breaching her fiduciary duty to her clients.
III. Bates violated the Code and Standards by failing to enforce reasonable procedures for supervising and monitoring Andrea in Andrea's trading for her own account.
II only.
II and III only.
III only.
I only.
I and III only.
I and II only.
I, II and III.

Answer(s): G

Explanation:

This question involves three Standards. Andrea, the portfolio manager, has been obtaining lower prices for her personal securities transactions than she gets for her clients, which is a violation of Standard IV (B.1), Fiduciary Duties. In addition, she violated Standard II (B), Professional Misconduct, by failing to adhere to company policy and hiding her personal transactions from her firm. Andrea's supervisor, Bates, violated Standard III (E), Responsibilities of Supervisors, by failing to enforce the procedures for reporting personal trading. Therefore, Statements I, II and III are all correct.

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QUESTION: 146

Standard II of the Standards of Professional Conduct deals with Relationships with and Responsibilities to ________.

AIMR
Clients
the Profession
Employers
None of these answers

Answer(s): C

Explanation:

Standard II of the Standards of Professional Conduct deals with Relationships with and Responsibilities to the Profession.

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QUESTION: 147

According to Standard IV (B.7), Disclosure of Conflicts, service on a board of directors poses which of the following as a basic conflict of interest?

Fiduciary duties owed to clients and the duties owed to shareholders.
None of these answers.
All of these answers.
Investment personnel who serve as directors may receive securities or the option to purchase securities of the company as compensation for serving on the board.
Opportunity to receive material nonpublic information.

Answer(s): C

Explanation:

Under Standard IV (B.7), service as a director poses all three statements as basic conflicts of interest. Hence, when members providing investment service serve also as directors, they should be isolated from those making investment decisions by the use of Fire Walls or similar restrictions.

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QUESTION: 148

Standard IV (B.3) - Fair Dealing requires AIMR members to treat all clients and prospects fairly when disseminating investment information or recommendation. Which of the following is/are implied by this?

All clients and prospects must be treated equally i.e. the investment recommendation should be disseminated to all the clients without prejudice.
II. Amongst the eligible clients, no favoritism should be shown i.e. small investors should be treated the same as large investors.
III. All eligible clients must be informed about new opportunities simultaneously.
I and II only
II and III only
II only
I, II and III

Answer(s): C

Explanation:

Standard IV (B.3) - Fair Dealing requires AIMR members to treat all clients and prospects fairly when disseminating investment information or recommendation. However, "fairly" does not mean "equally" for one major reason: each client has different investment needs. A recommendation, if not suitable for a particular client's risk-reward profile, should not be communicated to that client! So care must be taken while disseminating investment recommendations to individual clients to ensure suitability. Therefore, (I) is incorrect.
Of the eligible clients, as long as there is no bias shown favoring one client over the other, the standard does not require that they be informed simultaneously; indeed this is almost impossible in most cases because of time lags in communication channels - mail, phone, fax, etc. So (III) is incorrect.

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QUESTION: 145

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QUESTION: 146

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QUESTION: 147

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QUESTION: 148

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