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Up7
Ronald Pitt manages equity portfolios for a group of high net-worth individuals. His friend, a rich businessman, also has his portfolio managed by Ronald. Ronald learns of a security recommended as ‘buy’ by his company’s research team. Ronald thoroughly reads the detailed report and concludes that the recommended stock is worth buying. He first buys the stock for his friend and then goes on to buy the stock for other client accounts. Which of the following statements relating to violation of CFA Institute Standards of Professional Conduct is most likely true?
- Ronald violates standard V(A), Diligence and Reasonable Basis
- Ronald violates standard III (B), Fair Dealing
- Ronald violates both standards V(A) and III (B)
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Up5
The correct answer is B.
According to standard III (B), members must deal fairly with all clients. By giving preferential treatment to his friend, Ronald violates the standard by being unfair to other clients.
The ‘buy’ recommendation is given by his company’s research team. Further, he himself reads the entire research thoroughly and is convinced that the stock is worth buying. Thus, he has a reasonable basis to buy the stock. Standard V (A) is not violated.
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Up4
Woo! I got it right. 🙂
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Up4
Does “thoroughly reading the detailed report” constitute to a reasonable basis and due diligence? I answered “C” because I thought Pitt should have done more than just “thorough reading”. What do you guys think?
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Up0
@exam_whiz‌ what’s the right answer here?
is the answer B because his friend is a high net worth individual? other accounts will end up buying the stock at an increased price?
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