"morality" exercise:Referral Fees

A is correct as the money should not be accepted without receiving written consent from all parties involved; therefore, Zagoreos is in violation of Standard IV(B)–Additional Compensation Arrangements. The manager has acted for her own benefit by receiving compensation that competes with or might reasonably be expected to create a conflict of interest with her employer’s interest without receiving written consent from all parties involved. This action is a violation of Standard III(A)–Loyalty, Prudence, and Care, which requires that members act for the benefit of their clients, and places their client’s interests before their employer’s or their own interests. However, there is no indication that the member has received compensation, consideration, or benefit received from, or paid to, others for the recommendation of products or services and therefore has not violated Standard VI(C) related to referral fees.

B is incorrect because the manager has acted for their own benefit by receiving compensation that competes with or might reasonably be expected to create a conflict of interest with her employer’s interest without receiving written consent from all partiesinvolved. This action is a violation of Standard III(A)–Loyalty, Prudence, and Care, which requires that members act for the benefit of their clients, and places their client’s interests before their employer’s or their own interests.

C is incorrect as the manager has accepted compensation that competes with or might reasonably be expected to create a conflict of interest with her employer’s interest without receiving written consent from all parties involved, in violation of Standard IV(B)– Additional Compensation Arrangements.

C is correct, as Standard (V)–Diligence and a Reasonable Basis requires members and candidates to have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action. Relying solely upon attendance at a one-day conference listening to industry experts to make an investment recommendation, especially when the industry experts have based their recommendations upon price data only, would not meet the requirements of the Code and Standards with regard to Diligence and a Reasonable Basis.

A is incorrect because there has not been a violation of this standard.

B is incorrect, as even though the portfolio manager has allocated a portion of her portfolio to an asset class she recommended for clients there has not been a violation of this Standard since the manager has not front run any of her clients.