Categories
Ethics
  • Ethics in Practice: Sharing CFA® Exam Experience Is Fine, Right?

    Source: Jon Stokes
    Date Submitted: 20 Sep 2018
    Views: 25
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 39)

    Taveras is a CFA® charterholder who leads an exam preparation course given by his local CFA® Society for candidates in the CFA® Program. The society hosts a celebration for the students after the exam is over. During the celebration, a number of Taveras’s students describe their experience sitting for the exam. Most give their opinion about the relative difficulty of the exam given their expectations and some describe their surprise about areas of the curriculum that were not tested. Taveras asks his students their opinion on the most difficult questions on the exam. Taveras

    A. is free to pass along information about the exam to candidates in future prep classes to help prepare them for the exam.
    B. can provide the opinions of his students about the difficulty of the exam to candidates in future prep classes to emphasize the need to thoroughly prepare.
    C. can solicit information about the exam questions from students in an effort to improve the course for future prep classes.
    D. must not discuss the exam with students after it is over.

    ANALYSIS
    This case relates to CFA Institute Standard VII(A): Conduct as Participants in CFA Institute Programs, which states that candidates must not engage in any conduct that compromises the integrity, validity, or security of CFA Institute Programs. It is natural and expected that a group of colleagues who have collectively gone through the rigorous process of studying for and taking the CFA® exam will want to celebrate the accomplishment and discuss the exam after it is over. Candidates can discuss their exam experience with Taveras in general terms. But they cannot provide specific information about the exam regarding the questions or the general areas tested.
    And Taveras cannot pass along that information to future candidates and should not be soliciting information about specific questions or he would be in violation of the standard, which is designed to protect the integrity and security of future exams. The best answer is B because it is acceptable for Taveras to advise future prep classes that his previous students found the CFA exam to be more difficult than expected, so they should study the curriculum and prepare as much as possible.


    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org
  • Ethics in Practice: Does Trade Execution Venue Matter?

    Source: Jon Stokes
    Date Submitted: 13 Sep 2018
    Views: 30
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 38)

    Eller is the head trader for a large, global investment adviser and broker/dealer firm. Eller executes the majority of customer orders internally but routes a significant portion of orders to other, outside broker/dealers for execution. Over a period of five years, Eller and the firm routed to outside venues 15.8 million orders that involved 5.4 billion shares worth more than $141 billion. Eller and the firm do not inform clients that trades are sometimes executed using outside venues. Eller’s actions are

    A. appropriate as long as Eller obtained best execution for the clients wherever the trade was executed.
    B. inappropriate because Eller is misleading clients regarding a material aspect of the investment process.
    C. appropriate because order execution venue diversification is an insignificant and routine aspect of the investment process.
    D. inappropriate because using outside broker/dealers to execute client trades could distort market prices.

    ANALYSIS
    The execution of trades is a material aspect of the investment process. Investors can use the execution venue information provided by the firm to make strategic choices about their broker/dealer relationships and tactical routing decisions. Investors may also not want their orders routed to outside venues because it exposes important information about their investment strategy. In addition, listing outside trade executions as having occurred within the firm gives the misleading impression that the firm is a more active trading center than it actually is. Using outside broker/dealers is not, in and of itself, unethical and does not necessarily lead to distorting the market. Eller’s ability to obtain best execution for these trades does not absolve him of misleading the firm’s clients regarding a material aspect of the investment process. By providing inaccurate information to clients about how their trades were executed, Eller violated Standard I(C): Misrepresentation, which prohibits CFA Institute members from making any misrepresentation relating to investment actions. The best choice is B.

    This case is based on a recent enforcement action and penalty by the US SEC.
     
    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org
  • Ethics in Practice: Longtime Customers Can Be Trusted, Right?

    Source: Jon Stokes
    Date Submitted: 06 Sep 2018
    Views: 15
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 37)
    Smith-Pelley is president and CEO of Capital First Investment Group (CFIG), an investment adviser that is a wholly owned subsidiary of Capital First Bank. CFIG uses the 25 branch offices of the bank for its business locations. One client of CFIG, a longtime bank customer and personally known by Smith-Pelley and the board members of the bank, opened an investment account at CFIG with the stated investment objective of income. Although the client did make a few investments over the course of a year, the client engaged in almost exclusively banking activity in the account that involved hundreds of transactions and consisted of $90 million in deposits and $84 million in withdrawals.
    The transactions included electronic transfers to and from individuals and entities located in bank secrecy havens or countries identified by the government as presenting a money laundering risk. In addition, Smith-Pelley understood the client to be engaged in a type of international business activity that presented an increased risk of transactions being tainted by corruption or bribery. But because of the client’s longstanding relationship with the bank, Smith-Pelley presumed that the transactions had a legitimate business purpose. Smith-Pelley accepted vague descriptions of the transactions as “for services provided,” “consulting fees,” or “commissions,” and he approved the daily anti money laundering (AML) reports (required by law when transactions trigger red flags of potentially suspicious activity) without further investigation. Smith-Pelley’s actions are

    A. appropriate because the non-securities activity in the client’s CFIG account was consistent with the type of transactions he had engaged in at the bank for many years.
    B. appropriate because Smith-Pelley is protecting the confidentiality of client information.
    C. appropriate because Smith-Pelley can rely on the clearing firm to report suspicious activity for the account.
    D. inappropriate. 

    ANALYSIS
    The facts presented in this case should have raised a number of questions for Smith-Pelley regarding the legitimacy of the client account at CFIG. The high velocity of money movement and low volume of investment activity was inconsistent with maintaining a securities account for the purpose of generating income, as stated in the account documents. The transactions in the account were high-risk transactions for money laundering activity and should have raised a greater level of scrutiny. Rather than investigate as required by law, Smith-Pelley did not ask questions because of the client’s long-standing relationship with the bank.
    Smith-Pelley cannot rely on the clearing firm to meet CFIG’s independent obligation to review the transactions for suspicious activity. Duty of loyalty to clients and preservation of confidentiality of client information cannot be used as a shield to allow clients to violate the law or otherwise damage the integrity or viability of global capital markets. Smith-Pelley’s actions violated Standard I(A): Knowledge of the Law which states that CFA Institute members and candidates must understand and comply with all applicable laws, rules, and regulations covering they professional activities. Smith-Pelley’s failure to adequately comply with the anti-money laundering requirements imposed by law violates this standard. The best choice is D.

    This case is based on a June 2018 enforcement action by the US Financial Industry Regulatory Authority.
     

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org
  • Ethics in Practice: Tell Potential Client of Staff Change?

    Source: Jon Stokes
    Date Submitted: 02 Sep 2018
    Views: 28
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 36)

    Andersen is the President and CEO of an asset management firm. Andersen and other senior investment managers of his firm make an in-person pitch to manage the investments of a large pension plan. In response to a request from the pension plan, Andersen lists the key personnel that would be involved in offering these services. But while awaiting for the outcome of the evaluation, one of the key personnel that Andersen identified and who was part of making the in-person presentation to the plan leaves the firm. Andersen should

    A. Hire a competent replacement for the person who left and then inform the pension plan of the change.
    B. Wait to determine whether the firm wins the business of the pension plan before informing them of the change in staff.
    C. Immediately inform the pension plan that one of the key personnel has left the firm.
    D. Do nothing because the pension plan is hiring the asset management firm not an individual.

    ANALYSIS
    This case relates to CFA Institute Standard I(C): Misrepresentation, which prohibits any knowing misrepresentation relating to professional activities. In this situation, after making the pitch for the investment management business of the pension fund, there is turnover in Andersen’s investment management staff. Andersen has identified the person leaving as a key employee and as a member of the team that made the initial presentation to the pension plan. From Andersen’s perspective, he surely has confidence in the abilities of the firm as a whole and will likely replace the person leaving with a competent professional with similar experience and talents so that there is a seamless transition in services to clients.
    Nevertheless, the pension plan is clearly concerned about the particular personnel involved in managing its assets because they asked for that information, which makes C the best response. If this was a junior employee, a staff member who had limited effect on the investment decision-making process, or someone who was not listed as a key employee or who was not part of the team making the presentation, then Andersen may not have to provide an update to the pension plan. But given the circumstances outlined in the case, Anderson must tell the pension plan about the departure of a key staff member to avoid a misrepresentation. Waiting until the replacement is found or until the pension plan makes a hiring decision is too late.
     

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org
  • Ethics in Practice: Using Info for Fund and Personal Accounts OK?

    Source: Jon Stokes
    Date Submitted: 23 Aug 2018
    Views: 28
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 35)

    Eaton runs a hedge fund that holds the commercial paper (CP) of a listed company. The fund also has a large investment in the equities of that company. Upon maturity of the CP, the company fails to honor the CP and refuses to communicate with Eaton. Based on these facts combined with further research indicating that the company may be having liquidity issues, Eaton sells the fund’s equity position. Eaton also shorts the company’s stock in his personal account. Select one of the following answers and then join the conversation to explain your choice.

    A. Eaton violated the Code and Standards by selling the fund’s equity position in the company.
    B. Eaton violated the Code and Standards by shorting the company’s stock in his personal account.
    C. Eaton violated the Code and Standards by both selling the fund’s equity position in the company and shorting the company’s stock in his personal account.
    D. Eaton did not violate the Code and Standards.

    ANALYSIS
    This case involves CFA Insitute Standard II(A): Material Nonpublic Information, which prohibits trading or causing others to trade on material nonpublic information. Information is considered “material” if it is likely to affect the price of a security. It is considered “nonpublic” if is not widely disseminated. But under the mosaic theory, those who work to uncover and piece together nonmaterial and/or public information to form an opinion about a security can trade based on significant conclusions derived from that analysis. In this case, the fact that a company has defaulted on its commercial paper commitment would likely be a material fact that a reasonable investor would like to know. It is also likely that information regarding the default, at least initially, is not publicly known. The CP is privately traded, and this information may be available only to the holders of the CP.

    Eaton becomes aware of the default because his hedge fund owns the CP, and thus he becomes immediately aware of the default when it occurs. The fund is in a unique position to be the first to be aware of the cash flow problems of the company. Does the fund have to wait to trade on the information until it becomes publicly known? This situation is similar to the case in which a customer orders goods from a manufacturer who does not deliver on time. The customer is in the best position to know that the manufacturer defaulted on the contract and thus have an early understanding of the difficulties the company is having. The informational advantage arises from a learned fact as a result of the proximity to the company, not because of any inside information. Intrepid analysts are likely to discover the information eventually. Eaton’s hedge fund is the first to do so given their relationship with the company. But even if Eaton’s hedge fund is able to trade on the information, Eaton’s investment action for his personal account is likely in violation of the standards because he is taking inside information that is confidential to the hedge fund and using for personal gain. The best choice in this case is B.
    This case was submitted to CFA Institute by an “Ethics in Practice” participant.
     

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org
  • 【中国市场策略】向政策再借一命

    Source: Hong Hao, CFA
    Date Submitted: 15 Aug 2018
    Views: 47
    Downloads: 0
    his research appears on WenXin's blog "Hong Hao China Strategy" on 13 August 2018 
  • Ethics in Practice: Loyalty to Firm or Clients' Interests First?

    Source: Jon Stokes
    Date Submitted: 16 Aug 2018
    Views: 27
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 34)

    Kuznetsov is a portfolio manager for a large investment firm that encourages its employees to sell proprietary investment products to their clients. Kuznetsov complies with this directive and within a year becomes the firm’s top seller of these investment vehicles. He receives stellar performance reviews and a large bonus. But Kuznetsov eventually determines that the firm’s investment products are underperforming and more expensive than other outside investment options that are suitable for his clients and present a better chance for growth. So, he sharply cuts back on purchasing the firm’s investment products for his clients. Although his supervisor puts increasing pressure on him to resume selling the firm’s products, Kuznetsov refuses. He complains several times to management that he is being pressured to place the firm’s interest above his client’s interests. He surreptitiously records several conversations with his supervisor and makes copies of client records that document what he considers to be his supervisor’s inappropriate conduct. When management ignores his complaints and his supervisor begins giving Kuznetsov poor performance reviews, he files a complaint with the local regulator against his supervisor and his firm, providing the recordings and copies of client files as evidence. After the firm becomes aware of Kuznetsov’s actions, he is fired. Kuznetsov’s actions are

    A. inappropriate because he failed to keep client information confidential.
    B. appropriate because he is protecting client interests.
    C. inappropriate because he violated his duty of loyalty to his employer by taking his dispute with his supervisor to the regulator, exposing the employer to financial and reputational harm.
    D. inappropriate because he could have met his ethical obligation by dissociating from the unethical activity of his supervisor. 

    ANALYSIS
    This case involves CFA Institute Standard IV(A): Duties to Employer – Loyalty, which states that CFA Institute members “must act for the benefit of their employer and not…divulge confidential information or otherwise cause harm to their employer.” But the interests of an investment professional’s employer are secondary to protecting the interests of clients. Circumstances may arise in which investment professionals can engage in conduct contrary to their employer’s interests in order to comply with their duties to clients. In pressuring Kuznetsov to sell more expensive and less profitable investment products to his clients, the employer is acting contrary to client interests.
    In general, Kuznetsov’s conduct in recording his conversations with his supervisor, copying client records, and reporting the employer to the regulator are justified because he is attempting to protect his clients’ interests by calling out his employer’s unethical (and possibly illegal) conduct. (However, certain jurisdictions may have laws against surreptitiously recording conversations without the other party’s consent.) Dissociating from the conduct may have removed him from the situation, but it would not be effective in this case because it would not necessarily prevent Kuznetsov’s employer from taking advantage of its clients and reassigning their accounts to employees who would engage in the misconduct. His “whistleblowing” activity is not a violation of the Code and Standards in these circumstances (Answer B).
     

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org
     
  • Ethics in Practice: Doing Too Much to Make Investments a Success

    Source: Jon Stokes
    Date Submitted: 09 Aug 2018
    Views: 16
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 33)

    Corrales manages a hedge fund that seeks out investment opportunities in developing markets. Using assets of the fund’s investors, the fund hires local companies to serve as “sub-advisers” to explore and obtain promising investment opportunities and navigate local laws and regulation. The sub-advisers often have very limited experience as financial consultants or advisers but do have close relationships and connections with local high-ranking government officials. The payments made by Corrales, through the sub-advisers, often cover substantial “deal fees” and other expenses that facilitate governmental support of each investment. Corrales does not require the local business partners to provide details of their activities or what specific expenses are covered by the fees. Corrales reports these expenditures to fund investors as operating expenses necessary to the success of the investment. Over several years, the hedge fund is very successful producing an 18% annual rate of return for its investors. Did Corrales actions violate the Code and Standards?

    A. Yes.
    B. No because it is acceptable to hire sub-advisers and business consultants to assist in procuring investment opportunities and managing specialized assets.
    C. No because the payments to the sub-advisers represent legitimate expenses to ensure the success of investments and protect the interest of investors.
    D. No, as long as the sub-advisers provide more detail about the nature and purpose of the payments and this information is disclosed to the hedge fund investors. 

    ANALYSIS
    To better serve clients, investment professionals may choose to delegate to third parties work that requires particular specialization, knowledge, or expertise. For example, an investment adviser may hire sub-advisers to handle a particular strategy or investment style outside the scope of the adviser’s ability or experience. A global adviser may hire a sub-adviser to manage an asset allocation invested in a particular market, and the payments to the sub-adviser would be legitimate investment expenses that could properly be passed on to investors in the fund.
    But the facts of this case indicate that Corrales is not hiring a true sub-adviser but essentially paying locally connected officials to secure access to investment deals to ensure the success of the fund’s investments. The “sub-advisers” have no financial experience but are close to the government officials, and the “deal fees” are not supported by any documentation that details legitimate investment expenses. The “operating expenses” charged by Corrales to the fund are most likely funding corrupt transactions and bribes through local intermediaries. This practice violates multiple standards:
    • I(A): Knowledge of the Law because the conduct would violate any type of anti-bribery laws.
    • I(C): Misrepresentation because he is improperly labeling the expenditures as investment fees.
    • V(A): Diligence and Reasonable Basis because no reasonable and adequate basis for the “investment” action exists.
    • V(C): Record Retention because no appropriate records are being kept to support the action.
    • VII(A): Conduct as Participants in CFA Institute Programs because assuming Corrales is a charterholder, his conduct compromises the integrity to the CFA designation.
    This case is based on a US SEC enforcement action from 2017.


    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org
  • CFA Societies Asia-Pacific Ethics Survey 2018

    Source: CFA Institute
    Date Submitted: 06 Aug 2018
    Views: 699
    Downloads: 22
    In March 2018, in collaboration with CFA Institute, CFA Societies in Asia-Pacific surveyed their members to uncover common ethical issues seen in the investment industry, and to identify what resources could support better ethical decision making and a more ethical firm culture.

    The attached reports are the findings from the survey.
  • Ethics in Practice: Just Building Client Relationships?

    Source: Jon Stokes
    Date Submitted: 02 Aug 2018
    Views: 18
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 32)

    Soto is a founding partner and CEO of JPA, a large wealth management firm with offices throughout the world. The firm has many global institutional clients that include state-owned entities run by government officials. In an effort to build client relationships, Soto initiates a “Client Internship Program” that allows clients to refer candidates for internships at JPA. Referrals from this program are considered for employment outside of the firm’s normal rigorous and competitive hiring process. The larger the JPA client, the more likely a referral from that client would be hired into a lucrative, career-building internship position. JPA hires more than 200 relatives and friends of the key executives of many JPA clients, including relatives and friends from many government agencies that JPA has investment banking or asset management relationships with. JPA generates more than $100 billion in revenue from these investments and uses the connections generated with these clients to assist other clients and navigate complicated regulatory landscapes. Soto’s actions in establishing the JPA “Client Internship Program” are

    A. appropriate because the internship program benefits clients.
    B. appropriate because the program is an incentive for clients that hire JPA, similar to discounted fees.
    C. appropriate because the program creates a mutually beneficial business relationship between JPA and its clients.
    D. a violation of the CFA Institute Code and Standards. 

    ANALYSIS
    This case related to CFA Institute Standard I(B): Independence and Objectivity, which states that CFA Institute members “must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise…another’s independence and objectivity.” JPA uses the internship opportunity to personally benefit the relatives and friends of certain key individuals, including government officials, with the intent to corruptly influence those decision-making officials and executives. So, response D is the correct choice because this practice is a violation of Standard I(B), and there are likely legal and regulatory provisions relating to anti-bribery, such as the US Foreign Corrupt Practices Act, that may be relevant depending on the legal regime(s) applicable to JPA.
    Modest gifts and entertainment in the ordinary course of business may be acceptable in the context of promoting professional services. Similarly, firms may offer large or significant clients discounts or incentives commensurate with their position. But this does not extend to offering what amounts to bribes to individual executives or government officials to influence the hiring process or look favorably on investment transactions. In this case the benefits were not to JPA’s investment clients but were personal to the individual decision makers.
    This case is based on a US SEC enforcement action from 2016.
     

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org
  • Ethics in Practice: Violated Professional Standards or Not?

    Source: Jon Stokes
    Date Submitted: 26 Jul 2018
    Views: 27
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 31)

    Manley, Head of Research at a long–short equity fund, leads a team of four analysts. One of the fund’s portfolio managers asks Manley to look at a particular small-cap company as a possible investment target. Because there is little information available on the company, Manley assigns the challenging task to Chang, one of the fund’s top junior analysts, who spends a week conducting research. Chang builds a cash flow projection model that shows the company is deeply undervalued. Manley briefly reviews the model and publishes a research report on the company with the author listed as the Research Department that recommends a “Buy” at the current price. The fund makes a substantial investment in the company’s stock. Later, several brokerage houses come out with research pieces on the company that include cash flow projections that are considerably lower than Chang’s model. Over the course of six months, the investment loses 25% of its value. Manley thoroughly reviews Chang’s model and discovers two assumptions that eventually proved erroneous as well as an arithmetic mistake. Choose one of the answers below and then join the conversation to make an argument for your choice.

    A. Manley violated the CFA Institute Code and Standards.
    B. Chang violated the CFA Institute Code and Standards.
    C. Manley did not violate the CFA Institute Code and Standards.
    D.Chang did not violate the CFA Institute Code and Standards.

    ANALYSIS 
    Many people chose response A this week, which was the easy answer; the subordinate’s work was flawed so the supervisor must be responsible. And that can be true under some circumstances. But response C — no supervisor violation — could be just as correct given the right facts and circumstances. Providing your choice without explanation earns you a grade of “incomplete.” This week’s case shows how you must identify all the relevant facts before making a decision to analyze a decision from an ethical perspective. Read on for arguments that could be made for each answer.
    Case for Response A. Manley violated Standard V(A): Diligence and Reasonable Basis by relying on the erroneous work done by Chang. In addition, as Head of Research, Manley violated Standard IV(C): Responsibilities of Supervisors by failing to supervise Chang, who himself violated the standards (See Response B analysis). Manley only briefly reviewed Chang’s work. Finally, Manley misrepresented the author of the research report as that of “the Research Department” when Chang conducted the research.
    Case for Response B. Chang violated Standard V(A): Diligence and Reasonable Basis. Chang included two erroneous assumptions in his model. It is not clear from the facts that he had a reasonable and adequate basis or that he thoroughly analyzed the information to create his model. Furthermore, he did not thoroughly check his model because he made an arithmetic mistake that contributed to skewing the model results.
    Case for Response C. Manley did not violate the standards because he reasonably relied on the work of one of his colleagues, who had a track record of exercising diligence and thoroughness and conducting appropriate research. Furthermore, there is no indication from the facts that Manley failed to adequately supervise Chang. The facts of the case do not indicate the supervisory steps Manley or the fund have in place to monitor Chang’s work. A “brief” review by Manley of the research may be appropriate if other steps are in place (peer review, for example) to check the appropriateness of Chang’s analysis. And there is no indication that Chang violated the standards. (See Response D analysis). Finally, it is proper to have the author of the research report listed as the “Research Department” because the work is that of the firm.
    Case for Response D. Chang did not violate the standards because there is no indication from the facts that he failed to exercise diligence and thoroughness or that his research was not supported by appropriate research and investigation. Although the two assumptions ultimately proved erroneous, that does not automatically mean that they were inappropriate when initially made by Chang given the facts he was aware of at the time. Being incorrect about an investment recommendation or prediction is common. An inaccurate prediction is not sufficient evidence that a violation of the CFA Institute Code and Standards occurred. It is also not clear from the facts that the arithmetic mistake was material or affected the outcome of the model.

    This case is based on facts written by Tanuj Khosla, CFA, CAIA.
     


    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org
  • Ethics in Practice: Comment on Facebook Your Responsibility?

    Source: Jon Stokes
    Date Submitted: 19 Jul 2018
    Views: 18
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 30)


    Wieters runs an investment advisory firm that specializes in equity only asset management. For clients and prospective clients seeking to follow a balanced or fixed-income strategy, Wieters posts on her firm’s Facebook page the names of a number of firms that she is familiar with that provide these services. One of the firms replies in the comment section of the post, providing basic performance history information and claiming compliance with the GIPS® standards. Unknown to Wieters, the performance history is misleading and the claim of compliance with the GIPS standards is inaccurate. Has Wieters violated the CFA Institute Code and Standards?

    A. Yes because Wieters must exercise diligence and have a reasonable and adequate basis for every statement made on her firm’s Facebook page.
    B. No as long as Wieters does not receive referral fees from the adviser for including the adviser’s information in the original post.
    C. Yes if Wieters “likes” the post by the adviser containing the erroneous information.
    D. No because Wieters is not responsible for any information posted by third parties in the comment sections of her firm’s Facebook page. 

    ANALYSIS
    This case involves CFA Institute Standard I(C): Misrepresentation, which states that CFA Institute members and candidates must not knowingly make any misrepresentation relating to investment analysis, recommendations, or actions. Wieters has the responsibility under Standard I(C) to make sure that any professional communications she puts out are not misleading, whether or not the statements are verbal, written, or posted on social media. In this case, although the misleading statements are posted on the social media platform that Wieters controls, the misleading statement is clearly made by someone else because it is in a comment written by another person.
    Therefore, Wieters may not be considered responsible under the CFA Institute Code and Standards for verifying the truthfulness of others information. In providing a list of potential service providers for a style of investment she does not provide, it is not clear whether she is recommending the services of those firms in her post. A recommendation of services would be a step that moves Wieters closer to endorsing the misleading information rather than passively allowing comments by others on her social media account. The payment of referral fees (or no payment of referral fees) is not relevant to the misrepresentation issue. Wieters would be in danger of violating the Code and Standards if she knows the adviser’s information to be false and allows it to remain on her Facebook page. It is, therefore, not the case that Wieters is never responsible of any information posted by another person on her page. (In this scenario, the facts are clear that she does not know that the performance history and claim of compliance with the GIPS standards are false.)
    Answer C is actually the best answer because if Wieters “likes” the adviser’s comment or responds in another way that indicates she explicitly or implicitly endorses, adopts, or approves the content of the comment, that would effectively be a communication made by Wieters. She would then become responsible for the content. By “liking” the adviser’s misleading performance information, Wieters becomes the author of a separate and distinct communication that includes misleading statements. To be safe, best practice would be for Wieters to remove from her Facebook page any potentially problematic or unverified statements or comments made by others until she can determine the veracity of those statements.
     

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org
     
  • Ethics in Practice: Valuing Assets and Calculating Fees

    Source: Jon Stokes
    Date Submitted: 12 Jul 2018
    Views: 51
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 29)

    Maalouf works in a branch office for a large wealth management firm. The firm’s fees are based on a percentage of the value of the assets managed in each client account. The firm has a standard method for valuing assets and calculating fees for all of its clients, which is disclosed to each client at the outset of the relationship. Over time, the firm transitions to (1) using the market value of client assets at the end of the billing cycle instead of the average daily balance of the account; (2) including assets in the fee calculation, such as cash or cash equivalents, that were previously excluded; and 3) charging clients for a full billing period rather than prorating fees for clients that start or terminate accounts mid billing period. Maalouf

    A. cannot use end-of-cycle valuations, include cash equivalents, or charge full fees for a full billing cycle for partial cycle accounts.
    B.can change the valuation and fee calculation methodology as long as actual fees charged to clients are lower.
    C.must notify clients of the changes in the valuation and fee calculation methods.
    D.cannot change fundamental elements of the client relationship, such as valuation and fee calculation methodology, once it is disclosed to the client.

    ANALYSIS
    This case involves Standard V(B): Communication with Clients and Prospective Clients, which requires CFA Institute members and candidates to disclose to clients the basic format and general principles of the investment process. Advisory fees are a critical part of the investment management process. Developing and maintaining clear, frequent, and thorough communication with clients allows them to make well-informed decisions about their investments, including about whether to engage or retain an investment adviser. Any changes to the methods for valuing assets or calculating fees that are different from the process set out and agreed to by the client must be disclosed. It is improper to change fee calculation methodology without disclosure even if it results in lower fees. Using end-of-cycle valuations, including cash equivalents, or not pro-rating fees for newly acquired or terminated clients are possible methods for calculating fees as long as those policies are disclosed and agreed to by the client. It is also permissible to change valuation and methodology and fee calculation policies overtime for existing accounts. Maalouf and his firm can negotiate with their clients about changing the methods for calculating fees that were originally disclosed. So, the best answer is C, Maalouf must notify his clients of the changes in the valuation and fee calculation methods.
    This case is based on a recent US SEC Office of Compliance Inspections and Examinations Risk Alert.

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org
  • Ethics in Practice: Good Advice to Move Retirement Funds?

    Source: Jon Stokes
    Date Submitted: 04 Jul 2018
    Views: 22
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 28)

    Urquhart is a financial planner for AKC, which runs a large network of financial planners. AKC compensates its planners based on the number of sales of AKC products. Urquhart advises a husband and wife to roll their retirement funds, which combined are worth $125,000, from one service provider into a single AKC investment fund that follows a large-cap equity strategy. Urquhart discloses to the couple that they will have to pay a penalty totaling $30,000 for closing their accounts, but they will make up this loss with better investment returns from the AKC product. Urquart’s actions are

    A. acceptable if the AKC product is suitable for the couple.
    B. unacceptable because he is promising a specific rate of return.
    C. acceptable because he fully disclosed the negative consequences of closing their accounts.
    D. unacceptable unless the performance history of the AKC product supports his statement about future returns.

    ANALYSIS
    This case involves CFA Institute Standard I(C): Misrepresentation, which states that CFA Institute members and candidates must not knowingly make any misrepresentation related to investment analysis, recommendations, or actions. This standard prohibits making any statements promising or guaranteeing a specific rate of return on volatile investments. Even if the AKC product is suitable for the couple, it is an equity-based investment that is inherently volatile. Urquhart cannot make promises about future returns, even if the historical performance return would have reached the performance goal. Although he fully discloses the negative consequences of transferring their assets to the AKC product, that disclosure does not mitigate the inappropriate statement about future expected returns. Therefore, the best answer is B. As an aside, this case also raises questions about whether advising the couple to take such a significant loss in their retirement savings would be in their best interest and whether Urquhart’s independence and objectivity is compromised because he is influenced to make such a recommendation by the compensation scheme of his employer.

    This case is based on details coming out of the current regulatory inquiry into the practices of financial services company AMP in Australia.
     

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org
     
  • Ethics in Practice: Compliant with Record Retention Standard?

    Source: Jon Stokes
    Date Submitted: 12 Jul 2018
    Views: 44
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 27)
    Ianetta is the chief compliance officer for Rocky Mountain Investments (RMI). He is responsible for establishing and maintaining appropriate regulatory compliance policies, including a document retention policy. RMI’s policies require retaining and archiving the emails of the firm’s personnel. RMI has rapidly expanded over the years, and Ianetta determines that the firm should move to a new and less expensive email archive provider. But during the transition, several thousand emails are temporarily inaccessible. In addition, the new system does not capture emails from accounts hosted on an external server, and it does not archive emails sent from a third-party provider’s application (“cloud” email). Do Ianetta’s actions comply with the CFA Institute Code and Standards?
    1. No because the record retention system Ianetta implemented is inadequate.
    2. Yes, as long as the inaccessible emails are able to be recovered.
    3. Yes because emails sent and received outside RMI’s email system are not required to be retained.
    4. Yes, if the emails are more than five years old.
    ANALYSIS
    The issue in the case involves record keeping. CFA Institute Standard V(C): Record Retention states that CFA Institute members must “develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients.” Emails to and from firm personnel are important records of the firm’s business. As the firms’ chief compliance officer, Ianetta has the responsibility to develop policies and procedures to meet the record retention requirements for RMI. The emails of firm personnel must be preserved regardless of what email service or platform is used to generate them. The requirement is not limited to only emails sent and received through the firm’s internal server.
    Guidance for Standard V(C) recommends that records be retained up to seven years in the absence of regulatory requirements. It is not clear what regulatory regime RMI is subject to if any, but best practice would be to keep seven years of the email records. The facts state that during the transition to the new email archive service provider, the records (emails) were temporarily unavailable, although it is not clear for how long. But even if the records are not available for a short time, it would be unacceptable. Lack of access to records for any amount of time could certainly cause issues with clients and regulators who may be wanting to review emails to substantiate investment recommendations, confirm communications, examine client/adviser discussions, and so on. Therefore, by not adequately fulfilling his responsibility to maintain appropriate records for RMI, Ianetta is in violation of Standard V(C), so the best answer is A.
    The facts of this case are based on a 2013 enforcement action by the US Financial Industry Regulatory Authority.


    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org
  • Ethics in Practice: Conflict of Interest or Not?

    Source: Jon Stokes
    Date Submitted: 22 Jun 2018
    Views: 1
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 26)

    Joyce works as a research analyst at private equity firm. Her personal investments are managed by her brother Neville, who works as a financial adviser. One day over lunch, Joyce’s colleague, Roger, mentions to Joyce that he is looking for a financial adviser and asks Joyce who she uses to manage her investments. Joyce tells Roger that Neville is her investment adviser, but she does not disclose that Neville is her brother. After meeting with Neville, Roger hires him to manage his considerable assets. Neville regularly pays a €5,000 referral fee to his current clients who recommend new clients to his firm. Neville offers to pay his sister the €5,000 referral fee. Joyce was unaware of the potential referral fee and refuses to accept the money from her brother given their relationship. Did either Joyce or Neville violate the CFA Institute Standards of Professional Conduct?

    A. Neither Joyce or Neville violated the CFA Institute Standards of Professional Conduct.
    B. Only Joyce violated the CFA Institute Standards of Professional Conduct.
    C. Only Neville violated the CFA Institute Standards of Professional Conduct.
    D. Both Joyce and Neville violated the CFA Institute Standards of Professional Conduct.

    ANALYSIS
    This case potentially involves the CFA Institute standards related to conflicts of interest. Standard VI(A): Disclosure of Conflicts requires members to “make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with their duties to their clients, prospective clients, and employer.” Does either Joyce of Neville have a conflict they need to disclose to Roger?
    It is possible that Joyce is recommending Neville to Roger because he is a close family relation and not solely because of his abilities as an asset manager. But she could also not want Roger to feel pressured to hire Neville just because he is her brother. Also, the discussion between Joyce and Roger is personal rather than professional in nature. Roger is not a client or potential client for Joyce, but rather they are just colleagues having a friendly discussion over lunch. Roger is not seeking investment advice. But even though Joyce’s actions in this particular scenario do not violate Standard IV(A), it may be prudent for Joyce to make such a disclosure at the outset. If Roger learns of the brother–sister relationship, he may feel that Joyce withheld important information from him. She could potentially still find herself on the receiving end of a complaint, especially if things later sour between Neville and Roger. One would hope that, in the interests of transparency and to promote her personal relationship with a colleague, Joyce would let Roger know that Neville is her brother.
    As for Neville, there is no required disclosure to Roger under Standard VI(A) because the fact that Roger was referred to Neville by his sister does not present a discernible conflict on the part of Neville. Another thing to look at is Standard VI(C): Disclosure of Conflicts – Referral Fees. This standard requires members “to disclose to their employer, clients, and prospective clients any compensation, consideration, or benefit received from or paid to others for the recommendation for products of services.” The facts indicate that Neville had a referral fee arrangement in place for his current clients when they referred his services to others. But in this particular case, Neville’s sister Joyce was unaware of the potential payment and turned down the referral fee when it was offered. So, Joyce was not influenced by a potential referral fee arrangement. If Neville had paid the referral fee to Joyce, he would have had to disclose this fact to Roger. But because no fee was paid, Standard VI(C) is not implicated.
    As a result, the best answer is choice A, which is that neither Joyce nor Neville violated the CFA Institute Standards of Professional Conduct.

    Facts for this case were supplied by Tanuj Kholsa, CFA, CAIA.

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org
  • Ethics in Practice: Material and Nonpublic Info or Not? 

    Source: Jon Stokes
    Date Submitted: 11 Jun 2018
    Views: 28
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 25)


    Robles, a fund manager, visits the main manufacturing plant of a large international cement company. During his visit, the management of the company discloses that the company has purchased additional land and resources at this location that can easily be put to use for low-cost expansion in the future. Management claims that the expansion would result in a capital cost per unit of production nearly 30% cheaper than industry norms. Management tells Robles “confidentially” that the company may consider expansion when the global economic climate improves sufficiently to boost demand for their product. Based on this information, Robles buys stock in the cement company for the fund he manages. Did Robles act unethically? Choose your response and join the conversation to explain your choice.

                         A. Yes because Robles traded based on material nonpublic information.
                         B. No because Robles did not trade on material nonpublic information

    ANALYSIS
    CFA Institute Standard II(A): Material Nonpublic Information prohibits members who are in possession of material nonpublic information that could affect the value of an investment from acting on that information. Information is material if it would significantly alter the total mix of information currently available in such a way that the price of the security would be affected. The nature, specificity, exclusivity, and reliability of the source of the information helps determine materiality. Information is nonpublic until it has been disseminated or is available to the marketplace in general. There are three pieces of information that are described in the case that are relevant to Robles’s decision to trade: (1) the purchase of excess land and resources at the site of the company’s main plant, (2) the calculation that using this additional capacity would reduce the company’s production costs to less than industry norms, and (3) the company’s expansion plans. Are any of these three pieces of information material nonpublic information?
    The first piece of information about acquiring additional production assets would likely be considered material. But it is not clear when the purchase occurred. Was it recent? Is the purchase in the public record? It is possible that the purchase is already publicly known, and the management’s disclosure to Robles is nothing new. It is also possible that the purchase just occurred or is imminent and has not been announced publicly, which would make the information nonpublic. The second piece of information about being to produce at much lower costs would be material information. But it is unclear whether this information is known only to the company. Certainly, confidential proprietary manufacturing cost calculations would be nonpublic, but astute analysts with knowledge of the industry may be able to easily make this type of evaluation. In that case, the information may not be confidential. Finally the third piece about the company’s expansion plans are very likely to affect the price of the company’s stock and would thus be material information. But again, the information is not specific enough. Management tells Robles that the company “may consider” expansion when the global economic conditions “improve sufficiently.” The possibility that the company “may consider” expanding is vague and ambiguous. When the economy “improves sufficiently” is also subjective and indefinite. Even if this information is disclosed “confidentially” only to Robles and is not publicly available, it is not clear that general plans about possible expansion at some unknown point in the future rises to the level of material information.
    In sum, a portion of the information disclosed to Robles by company management has the potential to be material. It is unclear from the facts of the case that the information is nonpublic. An argument could be made either way. We would need more information to make a determination about whether Robles violated the prohibition against trading on material nonpublic information.

    The facts for this case were submitted by Shreenivas Kunte, CFA Institute Director of Continuing Education and Advocacy, India, Asia-Pacific Region.
     

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • AsianFA  - Be Nice to Stakeholders: The Effect of Economic Policy Uncertainty on Corporate Social Responsibility

    Source: Jian Zhang, Ji (George) Wu, Dongmin Kong, Ni Qin
    Date Submitted: 29 May 2018
    Views: 119
    Downloads: 5
    This study examines how firms react to economic policy uncertainty by investing in corporate social responsibility (CSR). Using a Chinese sample, we find a positive and significant relationship between economic policy uncertainty and a firm’s CSR investment. A firm tends to signal their stakeholders to convey that it honor implicit contracts through investing in CSR activities during high uncertainty period. Our findings are more significant in firms in low social trust regions and in firms connected to arrested corrupt officials. Results are robust to a variety of model specifications and endogeneity problems.
     
  • Ethics in Practice: Capitalizing on Tax Benefits is OK, Right?

    Source: Jon Stokes
    Date Submitted: 31 May 2018
    Views: 1
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 24)


    Marte is an asset manager in Puerto Rico, a US territory. Residents of Puerto Rico receive significant tax advantages by investing in local securities. To capitalize on this advantage, Marte’s firm offers clients shares in a closed-end investment fund, organized under Puerto Rico’s financial laws and regulations, that holds at least 67% local securities and is permitted to borrow against up to 50% of its assets. The fund is usually leveraged to the extent legally permitted. Many of Marte’s clients have a modest net worth and conservative or moderate investment objectives. Marte convinces them to invest 85% or more of their assets in shares of the closed-end fund. Marte’s actions are

                     A. appropriate because they take advantage of the fund’s unique tax benefits for his clients.
                     B. inappropriate because the fund uses leverage to boost returns.
                     C. appropriate as long as Marte fully discloses the risks and benefits of the fund to his clients.
    ​                 D. inappropriate because the fund is an unsuitable investment for his retail clients.

    ANALYSIS

    CFA Institute Standard III(C): Suitability states that CFA Institute members and candidates in an advisory relationship with clients must “determine that an investment is suitable to the client’s financial situation and consistent with the client’s written objectives, mandates, and constraints before making investment recommendations or taking investment action.” In this case, given the favorable tax advantages of the investment vehicle, investment in shares of the closed-end fund may be suitable and appropriate for his clients at some level. In addition, the fund’s use of leverage may not be inappropriate or make the investment unsuitable. That said, Marte should always fully disclose the risks and benefits of his recommendations to his clients.
    But choice D is actually the best response. Given the financial circumstances and investment objectives of his clients, the high concentration of the fund’s shares in his clients’ accounts combined with the leverage make the weighty investment in the fund unsuitable. Despite the favorable tax advantages, highly concentrated clients bear the increased risk that a single market event affecting the value of the fund’s shares would significantly decrease their total account value. This risk is exacerbated by the fact that the closed-end fund is internally leveraged, which could magnify the fund’s loss during a market event that causes share values to drop steeply.

    This case is based on FINRA enforcement action from 2015.


    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.

     
  • Safeguards against the Introduction of a Dual-Class Shares Structure

    Source: Rocky Tung, Mary Leung, CFA
    Date Submitted: 17 May 2018
    Views: 2940
    Downloads: 75

    Safeguards against the Introduction of a Dual-Class Shares Structure
     
    As revealed in a survey conducted in Asia Pacific by CFA Institute in March, a majority (60%) of the 450-plus respondents have not had any experience investing in firms with a DCS structure, which signalled the urgency for and need to educate investors and the general public on the implications of DCS structures.


    The survey, “Dual-Class Shares and the Demand for Safeguards,” revealed that respondents in the region were divided when asked whether DCS structures should be introduced to the market, with 53% opposing the introduction and 47% in favour. Regardless of their position on DCS, almost all (97%) respondents considered it necessary to enact additional safeguards if DCS structures are permitted.

    Among different possible safeguards, more than 90% of respondents considered it appropriate to implement enhanced mandatory corporate governance measures as well as time- and event-based sunset provisions, such as automatic conversion of shares with super voting rights to ordinary voting rights. Specifically, 94% of respondents considered it appropriate to introduce a time-based sunset provision; among which, 91% of such respondents considered it appropriate to convert shares with super voting rights to ordinary shares within 10 years. Separately, 93% of respondents considered introducing a maximum voting differential appropriate; 63% of these respondents found a 2:1 maximum voting differential optimal.
     

  • Ethics in Practice:  Leaving Firm and Telling People Why!

    Source: Jon Stokes
    Date Submitted: 17 May 2018
    Views: 715
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 23)

    Nickoli is an investment counselor with HHI Capital Management. A colleague at her local CFA Society encourages Nickoli to leave HHI and join her at Vesuvius Asset Advisers. Nickoli eventually agrees and determines to leave at the beginning of the new year. Over the course of a few weeks prior to tendering her resignation, she mentions to her clients that they will likely be working with a new investment counselor in the new year because she will be leaving HHI in the coming weeks. Her clients express their surprise, and when pressed for details about why she is leaving, Nickoli shares that she is frustrated by and disagrees with the structure and direction of the firm, she disagrees with and does not have confidence in the current leadership, she does not believe the firm will be able to attract and retain good people, and other HHI employees have been mistreated and will also be leaving soon. Several of Nickoli’s clients indicate that they would like information about Vesuvius and may be interested in switching their accounts. After submitting her resignation, Nickoli immediately relays the names of those clients to Vesuvius, and after the first of the year, she begins soliciting them to transfer their accounts from HHI to her new firm. Nickoli’s conduct is
    1. acceptable because she is looking out for her clients’ best interest and believes Vesuvius provides better service.
    2. acceptable because she provides her opinion of HHI in response to questions from clients.
    3. acceptable because she did not solicit clients until after she left HHI.
    4. unacceptable because she made disparaging remarks about HHI to clients while she was still with the firm.
    ANALYSIS
    Answer D is the best response because this case relates to CFA Institute Standard IV(A): Duty to Employer – Loyalty, which states that CFA Institute members and candidates “must act for the benefit of their employer and not…otherwise cause harm to their employer.” Although a departing employee is generally free to make arrangements or preparations to change firms before terminating the relationship, those preparations must not conflict with the employee’s continuing duty to act in the best interests of the current employer and not otherwise undermine, disparage, or cause harm to the current employer. In this case, Nickoli decided to leave HHI and join Vesuvius several weeks before she submitted her resignation and notified the firm. During that time, Standard IV(A) obligated her to continue to act in the employer’s best interest and not engage in any activities that would conflict with this duty until her resignation became effective. Nickoli violated her duty of loyalty to HHI by making disparaging and harmful statements about the firm to its clients in the weeks prior to submitting her resignation and by promoting Vesuvius to HHI clients while she was still employed by HHI. Although she did not make actual solicitations until after she left HHI, Nickoli used the final weeks of her employment with HHI to contact and gauge which of the firm’s clients may be interested in receiving information about Vesuvius and possibly transferring their accounts from HHI. And although an investment professional should protect the client’s best interest, even if Nickoli believes the clients will be better off with her at Vesuvius, the clients’ relationship is with HHI. She is a representative of HHI, so she cannot malign the firm while still employed, even in response to questions.

    This case is based on a disciplinary case handled by the CFA Institute Professional Conduct group. The member in question received a Private Censure.
     
    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • Ethics in Practice: Doing Enough to Protect Clients?

    Source: Jon Stokes
    Date Submitted: 04 May 2018
    Views: 53
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 22)

    Giddings is responsible for compliance at GWH, a large broker/dealer and investment adviser. In connection with GWH’s wealth management business, the company maintains the personally identifiable information (names, addresses, phone numbers, account numbers, balances, and holdings) of hundreds of clients. Giddings adopted a number of policies and restrictions, including a Code of Conduct, that address employees’ access to and handling of this confidential information. Marsh, who works for GWH as a client service associate, downloads client data to his personal server located at his residence to facilitate his telecommuting. Marsh’s server is hacked and portions of the personal client information downloaded by Marsh are posted for sale on the internet. Did either Marsh or Giddings violate the CFA Institute Standards of Professional Conduct with respect to confidentiality? Join the conversation to tell us what you think and why.
    1. Marsh violated the CFA Institute Standards of Professional Conduct.
    2. Marsh did not violate the CFA Institute Standards of Professional Conduct.
    3. Giddings violated the CFA Institute Standards of Professional Conduct.
    4. Giddings did not violate the CFA Institute Standards of Professional Conduct.
    ANALYSIS
    CFA Institute Professional Standard III(E): Preservation of Confidentiality requires that CFA Institute members and candidates keep information about current, former, and prospective clients confidential unless the information concerns illegal activities, disclosure is required by law, or the client permits disclosure. Although Standard III(E) does not require investment professionals to become experts in information security technology, they must make reasonable efforts to ensure that communication methods and compliance procedures follow practices designed to prevent accidental distribution of confidential information. In this case, the facts presented do not provide enough information to determine whether Marsh or Giddings acted inappropriately to allow confidential GWH client information to end up for sale on the internet.
    As you think about your answer choice, there are two main questions that need to be addressed. The first issue is whether Marsh had permission to download client data to his personal server. If he did not, his misappropriation of client information for his own purposes constitutes a violation of Standard III(E). Even if he was not responsible for the distribution of the information, his misconduct facilitated the publication of the information. If Marsh did have permission from GWH to download and use the information from home, the second issue is whether Giddings adopted sufficient compliance policies and procedures reasonably designed to protect client information.
    As the compliance officer, Giddings is charged with ensuring the confidentiality of customer information by protecting against any anticipated threats or hazards to the security or integrity of the records. Giddings and GWH must work to protect against unauthorized access or use of client information that could result in substantial harm to clients. Although the facts state that GWH policies and Code of Conduct restricted access and handling of client information, the nature and extent of those safeguards are not provided. The fact that client information was able to be accessed and published calls into question the effectiveness of Giddings compliance efforts. Even if the policies were sufficient, there appears to have been insufficient auditing and/or testing of the effectiveness of the safeguards to keep client information confidential.
    This case is based on a US SEC enforcement action from 2016.
     

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
     
     
  • Ethics in Practice: Different Service for Different Clients?

    Source: Jon Stokes
    Date Submitted: 29 Apr 2018
    Views: 558
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 21)

    Korloff is a money manager for several clients. One of the clients, a pension fund, accounts for 35% of the assets under management at Korloff’s firm. The fund pays more management fees to the firm than any other client. The executive director of the pension fund has made it clear that, because of this dominant position, she expects Korloff to give the pension fund “enhanced service” service in the form of advance information on investment recommendations, priority position for initial public offerings, supplemental research reports on potential investments, and daily personal contact. Korloff should
    1. refuse to comply with the request.
    2. comply with the request only if his preferential treatment does not disadvantage other clients.
    3. comply with the request because the fund is such a large and important client.
    4. comply with the request because the fund is paying for the preferential treatment with the higher fees.
    ANALYSIS
    This case relates to Standard III(B): Fair Dealing, which states that CFA Institute members and candidates “must deal fairly and objective with all clients when providing investment analysis, making investment recommendations, and taking investment action.” Treating clients “fairly” means not favoring one client over another or discriminating against clients when disseminating investment recommendations or actions. Differentiated service to clients, in the form of personal, specialized, or in-depth service to clients who are willing to pay for premium service, is acceptable under the standard. Fair dealing also dictates that recommendations be distributed in way that all clients for whom the investment is appropriate for have a fair opportunity to act on the recommendation. Korloff may provide preferential treatment (reflecting the amount and level of fees paid by the pension fund) in the form of supplemental research and daily contact to the pension fund without disadvantaging other clients.
    But different levels of service cannot disadvantage or negatively affect other clients and should be disclosed and made available to all clients and potential clients. So, in this case, providing “enhanced service” to the pension fund is acceptable as long as the preferential treatment does not disadvantage other clients and it has been disclosed to them that they can also receive enhanced service along with the pension fund. Two aspects of the request — providing advanced recommendations to the fund and giving the fund priority position for initial public offerings — would disadvantage other clients by systematically benefiting the pension fund at the expense of other clients. With all of this in mind, choice B is the best response.
     
    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
     
  • Ethics in Practice: Is It OK to Just Quietly Fix Error in Model?

    Source: Jon Stokes
    Date Submitted: 19 Apr 2018
    Views: 35
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 20)

    Roger Foss is an institutional money manager specializing in a quantitative investment strategy. He developed his own quantitative model that he uses exclusively as the investment decision-making tool for client accounts. Foss heavily markets his “comprehensive and exclusive” model to clients and prospective clients as being an effective tool to manage risk. After using the model for several years, Foss discovers an error that inadvertently eliminated one of the key components for managing risk, leading to underperformance as a result of industry overexposure. During that time, several clients raised questions about their portfolio performance, but Foss attributed it to market volatility. Foss revises the model to address the error and begins to promote his “new and improved exclusive and comprehensive quantitative model.” Foss’s conduct is
    1. unacceptable because the original model resulted in underperformance.
    2. acceptable because factors in quantitative models are proprietary and do not need to be disclosed.
    3. unacceptable because he failed to disclose the error in the model and its impact on client performance.
    4. acceptable because Foss corrected the error and uses the new model.
    ANALYSIS
    This case involves CFA Institute Standard I(C): Misrepresentation, which states that CFA Institute members and candidates must not knowingly make any misrepresentation relating to investment analysis, recommendations, or actions. A misrepresentation is any untrue statement or omission of fact that is otherwise false or misleading. Although investment professionals are not required to divulge the proprietary elements of their investment decision-making model, they are prohibited from making statements about the model that are not true. In this case, Foss claimed that his “comprehensive model” would effectively manage risk while at the same time, because of an error, the model omitted a key factor for managing risk. Foss also made misrepresentations to clients by failing to disclose the error and its impact on performance and attributing the model’s underperformance to market volatility rather than the error. Correcting the error and using a new model does not address the misrepresentations. Underperforming the market or benchmark is not necessarily of indicative unethical behavior. But the fact that the original model did not effectively manage risk and led to underperformance also may lead to a violation of the CFA Institute Standard — Diligence and Reasonable Basis requiring CFA members to exercise diligence and thoroughness in analyzing investments and taking investment action. Choice C is the best response.

    This case is based on a US SEC enforcement action.
     
     
    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • Ethics in Practice: Designation Is Like a Degree, Right?

    Source: Jon Stokes
    Date Submitted: 12 Apr 2018
    Views: 772
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 19)

    Bilal Ahmed recently earned his CFA designation and joined a medium-sized hedge fund as a senior analyst. His supervisor, Elizabeth Bennett, the founder of the firm, earned her CFA designation 10 years ago. But she has not paid her CFA Institute membership dues for the past four years and no longer participates in the organization’s continuing education program. Bennett uses the CFA designation on her business card and on all the marketing materials for the fund. When Ahmed asks Bennett about her using the designation, Bennett tells him that since she passed the exam and earned the charter, the credential is similar to a degree from university that cannot be taken away. Later, during a marketing pitch by Ahmed and Bennett to a potential investor, the investor notes that he has narrowed down his manager search to firms that only employ CFA charterholders in senior positions. He asks Bennett if everyone in the firm on the investment side is a CFA charterholder. Bennett responds “Yes, that is correct.” Ahmed does not respond. Did either Ahmed or Bennett violate the CFA Institute Standards of Professional Conduct? Join the conversation to let us know your answer and why you chose it.
    1. Ahmed violated the CFA Institute Standards of Professional Conduct.
    2. Ahmed did not violate the CFA Institute Standards of Professional Conduct.
    3. Bennett violated the CFA Institute Standards of Professional Conduct.
    4. Bennett did not violate the CFA Institute Standards of Professional Conduct.
    ANALYSIS
    This case relates to CFA Institute Standard VII(B): Reference to CFA Institute, the CFA Designation, and the CFA Program, which states that when referring to the CFA designation, CFA Institute members and candidates “must not misrepresent … holding the designation.” The CFA designation is unlike a degree from university in that once granted the right to use the designation, individuals must also satisfy CFA Institute membership requirements (including paying dues) to maintain the right to refer to themselves as CFA charterholders. Although Bennett earned her charter, her membership is considered lapsed because she has not been paying dues to CFA Institute. Until her membership is reactivated, she must not present herself as a charterholder, and by continuing to use the CFA designation and representing herself as a charterholder to a potential client, Bennett has violated Standard VII(B).
    Participation in the CFA Institute Continuing Education Program is not mandatory for maintaining your designation, but it is encouraged as a way to meet the CFA Institute Code of Ethics provision that calls for members to maintain and improve their professional competence. Ahmed hears Bennett refer to herself as a charterholder, but knows that Bennett’s CFA Institute membership has lapsed. Standard I(A): Knowledge of the Law prohibits members from knowingly participating or assisting in the violations of others and requires members to dissociate from any unethical or illegal conduct. The issue for Ahmed is whether his acquiescence and silence in the face of Bennett’s misrepresentation rises to the level of assisting or participating in Bennet’s violation of the standard.
    It could be argued that Ahmed’s participation in a sales meeting in which he knows false information is given to a potential investor, and which could cause harm to that investor, constitutes assisting in the violations of those who provide that false information even if there is no active conduct by Ahmed. Best practice would be for Ahmed to address Bennett directly about her conduct and ask her to reinstate her membership or correct the statement made to the potential investor. If Bennett refuses to take corrective action, Ahmed could bring this conduct to the attention of the fund’s compliance department for them to address and dissociate from the activity by not participating in any additional sales meetings with Bennett.
    This case was written by Tanuj Khosla, CFA, CAIA
     

     Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • Ethics in Practice: When Is Scrutinizing Risk Not Enough?

    Source: Jon Stokes
    Date Submitted: 05 Apr 2018
    Views: 87
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 18)

    Aaron Bouchard is a portfolio manager with discretionary control over the portfolios of more than 400 clients. Bouchard pursues a “medium risk, value” strategy for his clients, and they hire him on that basis. After scrutinizing the risk of potential investments, he makes a risk assessment for each of the securities he recommends based on the risks facing the issuer’s business. The majority of securities Bouchard invests his clients’ assets in are small-cap companies in the oil and gas sector and in commodities that he considers “medium” risk. As a result, Bouchard’s client accounts are concentrated in those sectors. Bouchard’s actions are
    1. acceptable if he discloses his investment strategy to his clients.
    2. unacceptable because he does not exercise diligence and thoroughness in executing his investment strategy.
    3. acceptable if he maintains appropriate records to support his investment recommendations and actions.
    4. unacceptable because he does not have a reasonable and adequate basis to support his investment recommendations and actions.
    ANALYSIS
    This case involves CFA Institute Standard V(A): Diligence and Reasonable Basis, which states that members and candidates “must exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions.” Under this standard, members must also “have a reasonable and adequate basis, supported by appropriate research and investigation” for making investment recommendations and taking investment action. In this case, there is nothing to indicate that Bouchard’s investigation and analysis of the individual securities that he chooses for his clients’ accounts is insufficient or inadequate. The facts state that he “scrutinizes” the risk of potential investment on an individual basis. But in making the investment decisions, he does not appear to exercise diligence or thoroughness because he does not give sufficient weight to factors that go beyond long-term risk of the individual securities themselves. Bouchard does not consider such factors as security concentration in client portfolios, price volatility in the short term, or liquidity risk. Without considering all these factors in their entirety, Bouchard’s actions underweight the risk of the securities, likely making them a more risky investment for his clients than the “medium” risk that he has assigned. Because he does not exercise diligence and thoroughness when implementing his investment strategy, disclosing his strategy to his clients or maintaining adequate records for a faulty strategy will not cure the misconduct. In this case, the best choice is B.

     Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.


     
  • Ethics in Practice: Stick to IPS during Volatile Markets?

    Source: Jon Stokes
    Date Submitted: 03 Apr 2018
    Views: 94
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 17)
    Barry Van Wagenen manages the portfolios of high-net-worth clients. He completes an individualized IPS for each client when opening their account. He then develops a personal asset allocation formula based on each client’s risk tolerance, financial goals, and so forth. Over the past two days, the domestic and global equity securities markets fell more than 6%. Fearing a continued drop in the markets, Van Wagenen liquidates his personal investments and moves to cash until the financial markets stabilize. But he keeps his clients’ portfolios fully invested pursuant to the directives in their IPS. Van Wagenen’s actions are
    1. unacceptable because he is trading ahead of his clients for his personal account.
    2. unacceptable because his personal investment decisions do not match the investment recommendations he has made to his clients.
    3. unacceptable because he is not acting in a diligent and reasonable manner by leaving his clients assets fully invested in a rapidly declining securities market.
    4. acceptable because he is following his client’s directives, as detailed in their IPS, by keeping them fully invested.
    ANALYSIS
    The CFA Institute Ethical Decision-Making Framework provides guidance to investment professionals facing ethical dilemmas. The framework calls for identifying the ethical principle at issue, to whom a duty is owed, the relevant facts, and whether there is a conflict of interest to assist in choosing the appropriate course of conduct. In this case, we need more facts before we can properly analyze whether Van Wagenen’s actions are acceptable. Specifically, what level of investment discretion have Van Wagenen’s clients given him regarding investment decisions and whether the clients’ IPSs address how investment decisions are to be made in the face of rapidly changing market conditions. If Van Wagenen has full investment discretion, failing to adjust his client’s portfolio in a timely manner means Van Wagenen could be in violation of his duty to act with diligence and a reasonable basis — CFA Institute Standard V(A) — and in violation of his duty to his clients of loyalty, prudence, and care — CFA Institute Standard III(A). Similarly, if the IPS states that in the event of a significant market downturn, Van Wagenen has the authority to alter the agreed on asset allocation formula prior to formally revising the IPS, that would also be a strong indicator for Van Wagenen to take action. Under those circumstances, answer C would be the best choice. But if Van Wagenen has limited discretion or the IPS was silent about “emergency” powers to make changes in the portfolio, Van Wagenen’s hands may be tied (answer D). It is also not clear whether Van Wagenen acted diligently in attempting to contact his clients in the face of the volatile markets to determine whether they had any changes to their investment instructions. CFA Institute Standard VI(B): Priority of Transactions states that investment transactions of clients must have priority over personal transactions. This standard does not require that an investment professional’s personal investments match those of his clients because there may be differences in the risk tolerances, financial goals, and so on between the adviser and his or her clients (answer B). Finally, it is not clear that Van Wagenen is “front running” his client accounts because the price of the securities at issue may not be affected by the trades on his personal account (answer A).
    The facts for this case are not based on a particular case but reflective of current market volatility.
     

     Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • Ethics in Practice: Raising Capital with Digital Assets?

    Source: Jon Stokes
    Date Submitted: 22 Mar 2018
    Views: 118
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 16)
    Munchee is a US-based business that created an iPhone application (App) for users to review restaurants. The company initiated an initial coin offering (ICO) to sell digital tokens to raise $15 million in capital to invest in improving the App. The company advertised and promoted the offering on its website, in a white paper, and on social medial channels and message boards, such as Twitter and Facebook, particularly in forums aimed at those interested in investing in Bitcoin and other digital assets. In the communications about the offering, Munchee said it would use the proceeds to create an “ecosystem” in which the company, its App users, restaurants, and others could use the tokens to buy and sell goods and services. Munchee explained that it expects the tokens to increase in value as a result of the company’s efforts. In addition, increased participation in the ecosystem and the use, or “burning,” of tokens would also help increase the value of the tokens. Finally, Munchee stated that it intended for the tokens to trade on a secondary market. Munchee’s ICO was
    1. unacceptable because it promoted a virtual and highly speculative investment unsuitable for investors.
    2. unacceptable because it promoted the investment through social media, blog posts, and brief tweets that did not describe the significant limitations and risks associated with buying the tokens.
    3. unacceptable because the tokens were an unregistered security under US securities laws.
    4. acceptable.
    ANALYSIS 
    This case involves Standard I(A): Knowledge of the Law, which requires CFA Institute members to “comply with all applicable laws, rules, and regulations . . . governing their professional activities.” The fact that that the tokens are a virtual currency, highly speculative, and thus unsuitable for many investors does not make it unethical for Munchee to offer them as investments. Munchee is not an investment adviser but an investment issuer. It would be up to investors and their advisers to determine whether an investment was suitable for their portfolio. Similarly, from an ethical standpoint, Munchee is free to promote the tokens in a variety of ways as long as the company provides full and complete information about the investment, responds to inquiries from potential investors, and does not provide any fraudulent or misleading information about the tokens. Munchee can direct those who see brief promotional material about the tokens on social media to the company’s white paper that presumably contains full and complete information about the tokens. Again, it would be up to an investment adviser, not the issuer, to describe the significant limitations and risks associated with buying the tokens from an investor’s perspective.
    This case turns on whether the tokens are a security and thus need to be registered according to the US securities laws (US law would applicable because Munchee is a US-based company selling the products in the United States). In its 11 December 2017 cease-and-desist order against Munchee, the US SEC declared that the tokens were securities as defined by Section 2(a)(1) of the Securities Act and must be registered. According to the test applied by the SEC, a product is a security if it involves the investment of money in a common enterprise with a reasonable expectation of profits that are derived from the entrepreneurial or managerial efforts of others. Upon being contacted by the SEC, the company immediately canceled the sale and refunded the money of buyers who had bought tokens. Because of this prompt action and Munchee’s cooperation, the SEC imposed no additional sanctions. In this case, the best answer is C because Munchee is a US company that violated US Securities laws. The laws of another jurisdiction may not require registration of this type of virtual currency as a security. In that case, answer A could be appropriate.

     Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
     

     

     
     
  • Ethics in Practice: Just Protecting Client’s Assets.

    Source: Jon Stokes
    Date Submitted: 15 Mar 2018
    Views: 27
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 15)
    Mary Mwangi’s firm offered its clients several different insurance products. Three of Mwangi’s clients initially purchased one type of product (Class A), but later changed their mind and asked to swap the product for another, less expensive type (Class B). To complete the transaction, the law required the clients to execute new sale and purchase documents for the Class B product. The clients wanted to sign the necessary documents at the time they met with Mwangi to switch to Class B, but the documents were not ready. Mwangi advised her clients to wait until all of the paperwork was complete. But when the time came to complete the transaction, Mwangi was unsuccessful in reaching the clients for their signatures. Without the signatures, Mwangi’s firm threatened to cancel the swap, which because of other investment purchases, would have placed the clients’ accounts into an overdraft position. Under the firm’s policies, such shortfalls were to be covered by selling account assets once the debit had been outstanding for two weeks. To keep this from happening, Mwangi forged the clients’ signatures on the necessary documents to put the swap into effect. Mwangi’s actions were
    1. unacceptable.
    2. acceptable because the clients had already given their permission for the swap.
    3. acceptable with approval from her supervisor.
    4. acceptable if the clients gave her explicit permission to sign the documents on their behalf.
    ANALYSIS
    This case involves Standard I(A): Knowledge of the Law, which requires CFA Institute members to “comply with all applicable laws, rules, and regulations … governing their professional activities.” To complete the swap from the Class A to the Class B product, Mwangi’s clients were legally required to execute new sale and purchase documents, which did not happen because Mwangi forged their signatures. General approval of the transaction by the clients is insufficient to meet the legal requirement for client signatures. Obviously, approval of a supervisor to engage in illegal activities does not relieve Mwangi of her obligation to follow the law. Finally, even if the clients fully understand the circumstances and explicitly approve of Mwangi signing the forms on their behalf, the law requires that actual signatures of the clients must be on the documents. While the intent of the law is meant to protect the clients and the clients are waiving their rights, that still does not allow Mwangi to circumvent the legal requirements. The best response is A.

    This case is based on a disciplinary action by the CFA Institute Professional Conduct Program. Before this incident, the member had an unblemished career in financial services for more than 15 years. The firm confronted the member about the forgeries and she readily admitted what she had done. The member was terminated by her employer for cause and they reported her to the regulatory body. The regulator determined that the member had engaged in conduct unbecoming or detrimental to the public interest and in violation of the regulatory body’s member rules. She was suspended and  fined. CFA Institute investigated and imposed a Nine-Month Suspension on the member for violation of Standard I(A): Knowledge of the Law and Standard I(C): Misrepresentation.

     
  • Ethics in Practice: Side Job in a Comedy Club is Fine, Right?

    Source: Jon Stokes
    Date Submitted: 08 Mar 2018
    Views: 101
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 15)
    Gary Stansfield, CFA, works as a portfolio manager at Pitt Asset Management (PAM) based in New York. He has been actively involved with theatre since his college days and performs occasionally as a stand-up comedian at a comedy club after work hours. He is not compensated for his performances, but he is hoping to leave his job to launch an entertainment career. Audience members often show their appreciation for Stansfield’s act by giving him nominal tips. One night, Elaine Bennet, a broker at Newman Brokers, a firm that PAM often trades with and in sizeable volumes, stops at the comedy club with a group of friends while Stansfield is performing. Bennet and her friends thoroughly enjoy Stansfield’s comic routine and, as a token of appreciation, the group tips him $5,000. Stansfield should
    1. accept the money and thank Bennet and her friends for their generosity.
    2. accept the money but disclose it to his supervisor at PAM.
    3. accept the money but seek approval from his supervisor before continuing to perform at the club if he anticipates further additional compensation.
    4. not accept the money but thank Bennet and her friends for their compliments on his performance.
    ANALYSIS 
    This case potentially involves violations of the CFA Institute standards related to independence and objectivity and/or conflicts of interest. If Stansfield accepts the tip, it could be construed as gift to influence his conduct because some may find it implausible that an audience member would give such a generous tip irrespective of how much he or she might have enjoyed the comic sketch. The large tip he receives from Bennet and her friends after they attend his performance could be seen as an attempt by Bennet to influence Stansfield’s/PAM’s choice of brokers. But a key step of the CFA Institute Ethical Decision-Making Framework asks those facing an ethical dilemma to identify relevant facts. A number of relevant facts need to be determined to make an informed decision about the appropriate course of action for Stansfield. Does Bennet know Stansfield and know that Stansfield works for PAM or are they strangers? Does Stansfield have decision-making authority in choosing brokers on behalf of PAM (and if so does Bennet know this) or is Stansfield not involved in the decision about which brokerage firm to use? Does Stansfield know Bennet and who she works for? Was the tip primarily from Bennet or did it represent a collection from the whole group of friends? Do her friends work at Newman as well? Is one of them particularly wealthy and generous with struggling new entertainers? Assuming that the tip came primarily from Bennet and she knew Stansfield worked at PAM and believed Stansfield to have influence over PAM’s brokerage decisions, and if Stansfield knew Bennet and who she worked for, then best practice would be for Stansfield to politely reject the tip because it could be perceived to influence his fairness and objectivity when allocating trades. Although the information is incomplete, with these assumptions, the best response would be D. In working at the comedy club, Stansfield did not violate Standard IV(B): Additional Compensation Arrangements, which states that CFA Institute members must not accept any “compensation… that competes with or might reasonably be expected to create a conflict of interest with their employer’s interest” without written consent. Stansfield’s appearances at the comedy club did not interfere or compete with his day job at PAM, and he normally received tips that were minimal in value.


    This case is based on facts provided by Tanuj Khosla, CFA, CAIA
     
    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.

     
  • Ethics in Practice: Oh No! Accidental Facebook Post

    Source: Jon Stokes
    Date Submitted: 02 Mar 2018
    Views: 28
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 14)
    John Walsh, CFA, is the Chief Financial Officer of TrueTech Corporation, a leading semiconductor manufacturer in the United States. For the past few months, Walsh has led the TrueTech team in talks to buy a majority stake in Veridy Corporation, a smaller, privately owned semiconductor company that has a patented technology that could potentially cut the chip manufacturing costs of TrueTech by almost 40%. After intense negotiations, TrueTech is able to close the deal with Veridy late on a Friday night. Walsh wants to share the good news with his wife, so he takes out his phone and types “Finally! TrueTech has acquired a majority stake in Veridy. The deal is sealed!” But instead of sending the message to his wife, he accidentally posts it on his personal Facebook page. The next morning (a Saturday), he wakes up and discovers the blunder. Did Walsh violate any part of the CFA Institute Code of Ethics or Standards of Professional Conduct?
    1. No, this was an honest mistake.
    2. Yes, but Walsh does not need to do anything to rectify the matter because the posting was unintentional.
    3. Yes, Walsh should immediately disclose his actions to TrueTech and Veridy.
    4. Yes, Walsh should post the merger information on the company website and make a public announcement about the transaction.
    ANALYSIS
    This case is involves Standard IV(A): Duties to Employers – Loyalty, which states that CFA Institute members must not “divulge confidential information or otherwise cause harm to their employer.” Even though his action was unintentional, Walsh violated his duty of loyalty to his employer because he disclosed confidential information about TrueTech outside the company. The honest mistake does not exonerate him from violation. Walsh is also in danger of violating Standard II(A): Material Nonpublic Information, which states that CFA Institute members must “not act or cause others to act” on material nonpublic information. Walsh inadvertently leaked material nonpublic information to the select group of people who are his friends on Facebook. But there is no indication from the facts given that any of Walsh’s Facebook friends who received the merger information tried to take advantage of that information. Walsh should take steps to attempt to rectify his mistake. Although Walsh should notify TrueTech and Veridy of his error, that does not go far enough. The most appropriate course of action is for Walsh to publicly disseminate the news of the merger as quickly as possible so that the information is available to all investors. Answer D is the best choice.
    This case was written by Tanuj Khosla, CFA, CAIA, and the facts are not based on any particular case.
     

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • Mapping Sustainable Finance in Hong Kong

    Source: RS Group
    Date Submitted: 21 Feb 2018
    Views: 1568
    Downloads: 0
    In this inaugural survey, RS Group sets out to understand the current state of play of sustainable finance in Hong Kong as viewed by six stakeholder groups. By identifying the key drivers, challenges and sentiment towards sustainable finance, the survey aims to spark conversations, motivate action, and ultimately inform and inspire readers to adopt sustainable finance. RS Group surveyed near 240 individuals representing asset owners, asset managers, financial institutions, corporates, thought leaders, government, and regulators, and among many findings note 90% of respondents believe Hong Kong is “behind” or “reactive” in terms of sustainable finance compared with other global jurisdiction. While 75% believe sustainable finance is critical in order to maintain the city’s primacy as a leading international financial centre.

    Download the Report here: http://www.rsgroup.asia/sfi/surveyreport/

    RS Group is a Hong Kong-based family office whose mission is to advance a paradigm shift in people’s values and priorities, so that economic growth will not jeopardise human development and environmental sustainability. Recognising the severity and urgency of global issues faced today, RS Group have chosen to apply its entire capital portfolio towards advancing its mission. To further support  sustainable finance in Hong Kong, RS Group began developing the "Sustainable Finance Initiative" (SFI) in 2017. SFI’s mission is to mobilise private capital for positive impact, and accelerate Hong Kong's transition towards a sustainable financial centre.

    Further information can be found here http://www.rsgroup.asia/sfi/ or please email the team at sfi@rsgroup.asia 
     
     
  • Understanding female investors - women using capital to change the world

    Source: Moxie Future
    Date Submitted: 21 Feb 2018
    Views: 1763
    Downloads: 0
    New research published by Moxie Future shows that women are leading the way when it comes to investing responsibly with almost two thirds of those surveyed expressing an interest in pursuing investments that have a beneficial impact on society.
    The report entitled, “Understanding Female Investors: Women Using Capital to Change the World” (#UFI18) was commissioned by Moxie Future to better understand the investment preferences, habits and motivations of women and their interest in responsible investing, which entails channelling funds into companies and industries that are creating positive social and environmental change.  
     “Our survey shows that female investors want more than just good financial returns,” says Moxie Future’s Founder Ms. Jessica Robinson. “In addition, increasing numbers of professional women want to make investment decisions that positively influence the world and are aligned with their values.”
     In total, 2,536 women aged 18 to 65 were surveyed across the five major markets of Australia, China, Germany, United Kingdom and the United States through online interviews conducted between March and April 2017.
    Findings from the research highlight how female investors in China show the greatest interest and concern when it comes to responsible investment. In total, 84% of women surveyed in China expressed that they are motivated to be a responsible investor.
    Among those surveyed, globally 69% of women indicated that they would be interested in investing responsibly if suitable products were available. Interest in responsible investment products is notably highest among women in China (91%) and the United States (74%). 
    Across all markets poverty, income equality, healthcare and climate change are causes that matter the most to women when it comes to investing their wealth.
    In addition, while the research found that women are motivated, there are a number of barriers to be addressed. Many women view their lack of time, knowledge, understanding and distrust of information regarding investment products as the key obstacles in the responsible investment process. Within China however, the leading concern is lack of tested products in the market.
    “The research shines a light on the mindset of today’s female investors from their priorities when making investment decisions to the concerns that may be deterring them from investing responsibly,” says Ms. Robinson.
    “While our study has found that women are generally positive about responsible investing, it has uncovered the practical difficulties that they face when committing their money, not least a perception among women that the financial services industry is failing to offer advice that aligns with their goals and interests.
    “What this tells us is, not only is there a disconnect between women and the financial services sector, but there are untapped opportunities for the industry to work more closely with female investors to deliver products and services specifically designed around them. This includes catering to the investment preferences of women and addressing their needs in a more meaningful way.”
    With regards to China, Ms. Robinson attributes the higher levels of interest in responsible investing to the fact that Chinese women are facing more visible challenges, particularly environmental threats which may explain why they are more motivated.  
    “This is not forgetting that in terms of financial confidence, our research has uncovered that Chinese women tend to be the most bullish in their own investment abilities,” she continues.
    Results from the research also point to how of the five markets surveyed, women in Germany appear to be the most lacking in confidence. Concludes Ms. Robinson, “When it comes to responsible investment opportunities, confidence matters because the higher the level, the more likely female investors are to be concerned and engaged.”
    To view a full copy of the report, please see “Understanding Female Investors: Women Using Capital to Change the World. HONG KONG, 30 January, 2018 – New research published today by Moxie Future shows that women are leading the way when it comes to investing responsibly with almost two thirds of those surveyed expressing an interest in pursuing investments that have a beneficial impact on society.
     
     
  • Ethics in Practice: Performance, Footnotes and Benchmarks.

    Source: Jon Stokes
    Date Submitted: 22 Feb 2018
    Views: 39
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 13)

    Howard Young is CEO, portfolio manager, and sole owner of Stewardship Investment Advisers (SIA), a registered investment adviser with more than $154 million assets under management and over 250 discretionary accounts. For several years, Young has distributed marketing materials to clients and potential clients that contain gross-of-fee performance for returns on SIA’s managed portfolios. Young believes that gross-of-fees calculations are the most relevant because management fees are negotiable and can vary by client. Young includes a footnote at the end of the brochure disclosing that advisory fees would have to be netted out to show actual performance. The marketing material also includes a table that compares percentage increases in the S&P 500 Index with percentage increases in SIA’s performance. SIA’s performance includes the reinvestment of dividends. Young believes that the S&P 500 is the most appropriate and understandable benchmark because it is commonly reported in the financial press and recognizable by his clients. Has Young engaged in misconduct by using gross-of-fee returns or showing the S&P 500 performance? Join the conversation and tell us what you believe is the correct answer and use the Ethical Decision-Making Framework to help explain your choice.
    1. Young is guilty of misconduct in showing gross-of-fee performance.
    2. Young is NOT guilty of misconduct in showing gross-of-fee performance.
    3. Young is guilty of misconduct in providing the S&P 500 as a benchmark.
    4. Young is NOT guilty of misconduct in providing the S&P 500 as a benchmark.
    ANALYSIS 
    This case involves the presentation of performance history. CFA Institute Standard III(D): Performance Presentation states that “when communicating investment performance information, members must make reasonable efforts to ensure that it is fair, accurate, and complete.” The goal is to provide credible performance information to clients and prospective clients and to avoid misstating performance or providing misleading performance information. Absent legal or regulatory provisions prohibiting such conduct, presenting gross-of-fee performance results is acceptable as long as there is clear disclosure that relevant fees must be deducted to get the actual performance history. It is unclear from the facts presented whether Young’s footnote is prominent or clear enough to be sufficient to meet this standard. Best practice would be to present both gross-of-fee and net-of-fee performance histories, or in some other way, prominently show the effect of the fees so that the performance information meets the “fair, accurate, and complete” requirement of Standard III(D).
    Similarly, presenting a table that includes the S&P 500 performance as a benchmark for returns may be appropriate under certain circumstances. But when it is used as a benchmark for firm performance history that includes reinvested dividends, as in this case, it would not be an “apples-to-apples” comparison and would likely be misleading because the S&P 500 performance history does not include reinvested dividends. If Young wants to use the commonly reported S&P 500 returns over time as his benchmark, he should ensure the SIA’s returns are calculated in a comparable way. At minimum, there should be prominent disclosures of any differences between the benchmark’s and the firm’s returns. It is unclear from the facts presented whether Young has made the necessary disclosures regarding the benchmark. So, to judge whether there has been any misconduct, a thorough examination of the presentation material would be necessary to determine whether Young is presenting performance that is fair, accurate, and complete or whether his presentation misstates performance and is misleading.


    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • Ethics in Practice: Guilty or Not Guilty Is the Question!

    Source: Jon Stokes
    Date Submitted: 19 Feb 2018
    Views: 1158
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 12)
    Sunset Financial Services is a broker/dealer that has historically sold mutual funds and insurance products to individual investors. In 2011, the firm began selling private placements to clients as well. Norma Desmond, vice president of Sunset, is responsible for conducting due diligence on the private placements and placing them on an approved list that Sunset investment advisers can view on the firm’s internal website. Desmond relies on third-party due diligence reports to assess the viability and appropriateness of the private placements for Sunset’s clients. Tom Gillis is one of Sunset’s investment advisers that reviews the internal list of approved private placements and sells several of these investments to his clients. Gillis does not create any sales materials for these private placements but instead relies on sponsor-created sales materials to give to his clients. Has Desmond or Gillis engaged in any misconduct? Join the conversation and tell us what you believe is the correct answer and use the Ethical Decision-Making Framework to help explain your choice.
    1. Desmond is guilty of misconduct in selecting the private placements for Sunset to sell.
    2. Desmond is NOT guilty of misconduct in selecting the private placements for Sunset to sell.
    3. Gillis is guilty of misconduct in providing sponsor-created sales material to clients.
    4. Gillis is NOT guilty of misconduct in providing sponsor-created sales material to clients.
    ANALYSIS
    The Ethical Decision-Making Framework includes questions — such as What is the ethical issue involved? To whom is a duty owed? What are the important Facts? — that help investment professionals analyze situations from an ethical standpoint. The ethical issue involved in this case for both Desmond and Gillis relate to diligence and reasonable basis. Desmond bases her evaluation of private placements on third-party due diligence reports without conducting the analysis herself. Gillis gives sponsor-created sales material to clients without producing his own information on the private placements for his clients. Both Desmond and Gillis owe a duty to the clients of Sunset Financial to act with diligence and reasonable basis in investigating the private placement investments and recommending them to clients. CFA Institute Standard V(A): Diligence and Reasonable Basis states that CFA Institute members “must exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions.” Determining whether Desmond and Gillis met their responsibilities under Standard V(A) requires examining the relevant facts.
    In this case, not much background is provided, making it difficult to tell whether either engaged in misconduct. It is acceptable for Desmond to rely on third-party due diligence reports to evaluate investments as long as she take steps to ensure those reports are from a reputable source and have a reasonable and sound basis. It is not clear what steps Desmond took to evaluate the quality of the third-party due diligence provider. Without a critical evaluation of the third-party due diligence provider, she may have violated Standard V(A). Similarly, it is acceptable for Gillis to rely on Desmond to fulfill her responsibilities to conduct thorough due diligence of potential client investments. Gillis can assume that investments listed on Sunset’s approved private placement list have been thoroughly vetted by the firm through Desmond without having to go back and conduct the due diligence himself unless he has reason to question the validity of the process. It is also not necessarily improper for Gillis to rely on sponsor-created marketing material to provide information to clients, as long as Gillis, compliance, or other personnel at Sunset have thoroughly reviewed the material to ensure that it meets all applicable disclosure requirements and contains no misrepresentations. If Gillis simply forwards the material to clients without such a review, then he could be violating his duty of diligence to clients by potentially disseminating inaccurate or misleading materials to clients. Because of the lack of information provided in the case, an argument could be made that under certain circumstances, any of the responses could be chosen.

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • Ethics in Practice: Taking Care of Clients Is the Priority

    Source: Jon Stokes
    Date Submitted: 08 Feb 2018
    Views: 96
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 11)
    Dougal McDermott is president of Enhanced Investment Strategies (EIS), a small investment firm. Most clients of EIS are longtime associates of McDermott who have had their investment portfolios with EIS for decades. Because of his close personal relationship with his clients, McDermott is very familiar with their investment profile, income and retirement requirements, and tolerance for risk. He keeps abreast of the life changing events (such as health issues, real estate purchases, children’s university expenses, and retirement) of all his clients and adjusts their portfolios accordingly. McDermott regularly meets with his clients in EIS offices and sees them on numerous occasions outside the office where he has a chance to give them an update on their investments. EIS clients complete a client agreement and risk profile when opening their account and those profiles are updated as McDermott finds the time to do so. McDermott’s business practices are
    1. acceptable because he adjusts client investments to ensure that they are suitable for client investment needs given their changes income and risk profile.
    2. acceptable because he regularly communicates with clients about their investments.
    3. unacceptable because he does not keep adequate written records regarding client investment profiles.
    4. unacceptable because his close personal relationship with clients will affect his independence and objectivity when providing investment advice.
    ANALYSIS
    The issue in this case involves record keeping. CFA Institute Standard V(C): Record Retention states that CFA Institute members must “develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients.” The facts make clear that McDermott is personally close to clients. Although this fact may raise fair dealing concerns (McDermott may be benefiting some clients with whom he has a particularly close personal relationship over other clients), it does not necessarily raise questions about the independence and objectivity of McDermott’s investment advice (Answer D). It also appears from the facts provided that McDermott is fulfilling his ethical obligations as an investment manager by communicating regularly with his clients (Answer B) and reviewing and adjusting client portfolios on a timely basis to meet clients’ changing financial circumstances (Answer A). But McDermott only updates client records “when he finds the time to do so” and apparently not promptly or on a regular basis. Without necessary, relevant, and up-to-date know your client information, it would be difficult, if challenged, for McDermott to establish and prove that EIS identified the needs and circumstances of the clients and has taken these into account in recommending investments. When client circumstances, investment goals, risk tolerances, or income needs change, records should be promptly updated and reviewed on a regular basis to reflect and document these changes. The correct answer is C.
    This case is based on an UK Financial Services Authority enforcement action from 2010.

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • Sex, drugs, and bitcoin: How much illegal activity is financed through cryptocurrencies?  

    Source: Sean Foley, Jonathan R. Karlsen, Talis J. Putnins
    Date Submitted: 02 Feb 2018
    Views: 310
    Downloads: 0
    Cryptocurrencies have grown rapidly in price, popularity, and mainstream adoption. The total market capitalization of bitcoin alone exceeds $250 billion as at January 2018, with a further $400 billion in over 1,000 other cryptocurrencies. Over 170 “cryptofunds” have emerged, attracting around $2.3 billion in assets under management. What was once a fringe asset is quickly maturing.
     
    The rapid growth in cryptocurrencies and the anonymity that they provide users has created considerable regulatory challenges, including the use of cryptocurrencies in illegal trade (drugs, hacks and thefts, illegal pornography, even murder-for-hire), potential to fund terrorism, launder money, and avoid capital controls. There is little doubt that by providing a digital and anonymous payment mechanism, cryptocurrencies have facilitated the growth of “darknet” marketplaces that trade illegal goods and services.
     
    In a recent research paper, we quantify the amount of illegal activity that involves the largest cryptocurrency, bitcoin. As a starting point, we exploit several recent seizures of bitcoin by law enforcement agencies to construct a sample of known illegal activity. We also identify the bitcoin addresses of major illegal darknet marketplaces. The public nature of the blockchain allows us to work backwards from the law enforcement agency bitcoin seizures and the darknet marketplaces through the network of transactions to identify those bitcoin users that were involved in buying and selling illegal goods and services online. We then apply two econometric methods to the sample of known illegal activity to estimate the full scale of illegal activity.
     
    We find that illegal activity accounts for a substantial proportion of the users and trading activity in bitcoin. For example, approximately one-quarter of all users (25%) and close to one-half of bitcoin transactions (44%) are associated with illegal activity. The estimated 24 million bitcoin market participants that use bitcoin primarily for illegal purposes (as at April 2017) annually conduct around 36 million transactions, with a value of around $72 billion, and collectively hold around $8 billion worth of bitcoin.
     
    To give these numbers some context, the total market for illegal drugs in the US and Europe is estimated to be around $100 billion and €24 billion annually. Such comparisons provide a sense that the scale of the illegal activity involving bitcoin is not only meaningful as a proportion of bitcoin activity, but also in absolute dollar terms. The scale of illegal activity suggests that cryptocurrencies are transforming the way black markets operate by enabling “black market e-commerce”. In effect, cryptocurrencies are transforming the black market much like PayPal and other online payment mechanisms revolutionized the retail industry through online shopping.
     
    In recent years (since 2015), the proportion of bitcoin activity associated with illegal trade has declined. There are two reasons for this trend. The first is an increase in mainstream and speculative interest in bitcoin (growth in the number of legal users), causing the proportion of illegal bitcoin activity to decline, despite the fact that the absolute amount of such activity has continued to increase. The second factor is the emergence of alternative cryptocurrencies that are better at concealing a user’s activity (e.g., Dash, Monero, and ZCash). Despite these factors and numerous darknet marketplace seizures by law enforcement agencies, the amount of illegal activity involving bitcoin remains close to its all-time high.
     
    In shedding light on the dark side of cryptocurrencies, we hope this research will reduce some of the regulatory uncertainty about the negative consequences of cryptocurrencies. Hopefully, more informed policy decisions that assess the costs and benefits will contribute to these technologies reaching their potential. Our paper also helps understand the intrinsic value of bitcoin, highlighting that a significant component of its value as a payment system comes from its use in illegal trade. This has ethical implications for bitcoin as an investment. Third, the techniques developed in this paper can be used in cryptocurrency surveillance in a number of ways, including monitoring trends in illegal activity, its response to regulatory interventions, how its characteristics change through time, and identifying key bitcoin users, such as “hubs” in the illegal trade network.
     
    For more information, download the paper at https://ssrn.com/abstract=3102645.
  • Are We Really Putting Investors First?

    Source: Andrew Stotz, Ph.D., CFA
    Date Submitted: 04 Feb 2018
    Views: 13043
    Downloads: 0



    Are we really putting investors first? This is a story about ethics which highlights what I have learned from CFA Institute Code of Ethics and Standards of Practice.

    The world of finance is filled with scams, dishonesty, and outright criminal activity. Demanding that financial professionals apply the same standard of behavior to their clients that we would for our family members is the first step to building a future based on ethical principles. "Care for clients as you would your mother."
  • Ethics in Practice: Futures, Feed Yards, and Furtive Actions

    Source: Jon Stokes
    Date Submitted: 01 Feb 2018
    Views: 30
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 10)

    Rosenthal Collins Group (RCG) is a registered futures commission merchant with a number of branch offices, including one in Memphis, Tennessee. Phillips is hired to be the branch manager of the Memphis office, supervising a number of employees, including Lewis. Phillips allows Lewis to work from home, and as a result, Lewis has no physical office in the Memphis branch of RCG or even access to the building. Unknown to Phillips or RCG, Lewis also works for another futures commission merchant (AFCM). Lewis arranges swap agreements for AFCM, including orders with several cattle feed yards. And through another employee at RCG, he helps open new futures accounts for the feed yards RCG represents. Although the other employee at RCG receives all the commissions for the feed yard accounts, she surreptitiously splits these commissions with Lewis. This commission sharing arrangement is also unknown to Phillips. Phillips actions as a supervisor are
    1. acceptable if RCG did not develop adequate policies and procedures for the detection and deterrence of possible misconduct by its employees.
    2. acceptable if Phillips was not provided adequate training from RCG on its compliance policies and procedures.
    3. acceptable if the RCG home office conducted regular audits of the Memphis branch.
    4. unacceptable because Phillips did not diligently perform his supervisory responsibilities.
    ANALYSIS
    This case is about adequately exercising supervisory responsibility. CFA Institute Standard IV(C): Responsibilities of Supervisors states that “[CFA Institute] members must make reasonable efforts to ensure that anyone subject to their supervision or authority complies with applicable laws, rules, regulations, and the Code and Standards.” At a minimum, supervisors must make reasonable efforts to detect and prevent legal, regulatory, and policy violations by ensuring that effective compliance systems have been established. They must also understand what constitutes an adequate compliance system and make reasonable efforts to see that appropriate compliance procedures are established, documented, communicated to covered personnel, and followed. Supervisors must alert their superiors and firm management if there is an inadequate compliance system in place and work with them to develop and implement effective compliance tools. If the absence of or inadequacy of the compliance system prevents effective supervisory control, an investment professional should decline to accept supervisory responsibility until the firm adopts reasonable procedures to allow the effective exercise of supervisory responsibility.
    If Philips knew that RCG had not developed adequate policies and procedures for the detection and deterrence of potential misconduct by RCG employees, it would be incumbent on him to bring this to the attention of RCG, help develop adequate compliance policies, or decline supervisory responsibility. In the absence of adequate compliance policies, it would not be acceptable for Phillips to act as branch manager. A lack of adequate policies would also not be an excuse for failing to detect potential misconduct by RCG employees, including Lewis, which means Answer A would not be correct. Similarly, if RCG did not properly train Phillips on RCG compliance policies that did exist, Phillips should decline supervisory responsibility until he adequately understands RCG policies and procedures and expectations for maintaining his subordinates’ compliance with those policies. Lack of training on how to supervise should not be an excuse for inadequate supervision but a catalyst to seek out that training, thus making Answer B not the right choice. A regular audit of the Memphis branch by RCG home office compliance personnel could be an excellent way to ensure that branch employees are complying with applicable law, regulations, and RCG policies. But it is not a substitute for effective and regular supervision by Phillips, the onsite branch manager, making Answer C incorrect. Although it is not clear from the case what steps Phillips did take to diligently exercise supervisory responsibility, the fact that Lewis worked from home and did not have access to the branch office, suggests that Phillip’s “hands on” supervision was minimal at best and obviously ineffective. Answer D is the best choice.
    This case is based on an enforcement action by the US Commodity Futures Trading Commission from 2014.
     
    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • Ethics in Practice: Personal vs. On-the-Job Investments.

    Source: Jon Stokes
    Date Submitted: 04 Feb 2018
    Views: 263
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 9)
    Yang is a research analyst at BAMCO, a registered broker/dealer and investment adviser. While employed with BAMCO, Yang established Prestige Trade Investments Limited and acts as that firm’s investment adviser. Yang is responsible for formulating Prestige’s investment strategy and directs all trades on behalf of Prestige. Over the course of several days, Yang purchases 50,000 shares of Zhongpin stock and 1,978 Zhongpin call options for his personal account at BAMCO. Shortly thereafter, Yang uses $29.8 million of Prestige’s funds to purchase more than 3 million shares of Zhongpin stock. Yang’s actions are
    1. acceptable because Yang’s personal investments are not in conflict with the investment advice being given to his clients at Prestige.
    2. acceptable as long as BAMCO is aware of and consents to Yang establishing and working for Prestige as a separate entity.
    3. acceptable as long as Prestige clients are not negatively affected by Yang’s prior purchase of Zhongpin securities through his account at BAMCO.
    4. unacceptable.
    ANALYSIS
    This case involves an investment adviser “front-running” client trades. Front-running involves trading for one’s personal account before trading for client accounts. In this case, Yang purchased Zhongpin stock and call options in his personal account at BAMCO before directing the Zhongpin trades of clients at Prestige. Standard VI(B): Priority of Transactions states that “investment transactions for clients…must have priority over investment transactions in which a [CFA Institute] member…is the beneficial owner.” Yang’s personal investments are tracking with his client investments so there is no conflict between his personal trading and the investment actions/advice for clients. But the timing of the trades is what is at issue in this case, making answer A incorrect. Also, the fact that Prestige clients are not harmed by Yang’s earlier trades for his personnel accounts does not make his actions acceptable. The issue is Yang’s personal benefit derived from trading before his clients, which makes Answer C incorrect. Disclosure is not a cure for front-running. So, even if Yang had told Prestige clients that he would be making personal trades prior to taking investment action on their behalf that would benefit him, the trading in his personal account would not be acceptable. Yang would have to get permission from BAMCO to create and work for Prestige, according to CFA Institute Standard IV(A): Loyalty, but such permission does not allow Yang to engage in unethical activity while at Prestige, making Answer B incorrect. That leaves Answer D as the best answer. This case is based on a SEC enforcement action from 2014.

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
     
  • Ethics in Practice: Firm's Funds Are Best Investment, Right? 

    Source: Jon Stokes,
    Date Submitted: 13 Feb 2018
    Views: 109
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 8)

    Miriam works as an investment adviser for JVC Wealth Managers. JVC provides wealth management services to high-net-worth clients through discretionary, diversified, risk-adjusted investment management accounts that hold positions in both mutual funds and hedge funds. On average, Miriam has invested 74% of her clients’ mutual fund assets and 63% of her clients’ hedge fund assets in JVC proprietary funds, earning JVC and its affiliates additional fees. Miriam’s actions are
    1. acceptable because clients hiring JVC as an investment manager should expect that the firm will prefer investing in its own funds.
    2. acceptable if Miriam indicates her preference for investing client assets in JVC proprietary funds.
    3. unacceptable if there are non-proprietary mutual funds and hedge funds that meet the clients’ investment needs.
    unacceptable because the additional fees earned by JVC violate the duty of loyalty, prudence, and care that Miriam owes to her clients.

    ANALYSIS
    This case involves a potential conflict of interest for Miriam between providing cost efficient investment vehicles for her clients and selling her employer’s investment products. CFA Institute Standard VI(A): Disclosure of Conflicts states that CFA Institute members “must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity” or interfere with their duties to their clients. Best practice is to avoid conflicts of interest if possible, otherwise mitigate the conflict of interest through the disclosure called for in Standard VI(A). Although the additional fees earned by JVC from selling proprietary funds present a potential conflict, the fees do not automatically violate Miriam’s fiduciary duty to her clients (Answer D). It is possible that those proprietary funds are the best and most appropriate investment vehicles for Miriam’s clients even with the additional fees. But because there is a potential conflict of interest, Miriam must clearly disclose those fees “such that the disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively” according to Standard VI(A). And although Answer C is based on the existence of alternative non-proprietary mutual funds, that response does not say that those funds are superior to JVC funds or have lower costs. Assuming that the clients understand that Miriam, who works for JVC, will sell JVC products at every opportunity, is not sufficient (Answer A). The best answer in this case is Answer B, which calls for Miriam to disclose the conflict. This disclosure should be made at the outset of the relationship and address what investment vehicles will be used by JVC along with their costs.

    This case is based on a 2015 US SEC Enforcement action.


    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • Ethics in Practice: Just Being a Shrewd Investor.

    Source: Jon Stokes
    Date Submitted: 04 Feb 2018
    Views: 283
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 7)

    Sung Kook “Bill” Hwang is the founder and lead portfolio manager of Tiger Asia Partners (TAP) and Raymond Park is a trader for the firm. TAP is participating in private placements for both Bank of China and China Construction Bank stock, and the placement agents shared confidential information with Hwang and Park about both companies. In the days prior to the private placement, Hwang directed Park to make short sales in each stock. TAP earned $16.2 million by using the discounted private placement shares they received to cover the short sales. Park’s actions were
    1. acceptable because he was following the orders of his superior.
    2. acceptable because he used a short position rather than trading in the bank stock itself.
    3. acceptable if the placement agents did not require a confidentiality agreement covering information about the private placements.
    4. unacceptable because the trade was based on material nonpublic information.
    ANALYSIS
    This case relates to trading based on material nonpublic information (MNPI). CFA Standard II(A): Material Nonpublic Information prohibits members who have MNPI that could affect the value of an investment from acting or causing others to act on that information. Hwang and Park received MNPI about the bank stocks from the placement agents as part of the offering process. Park is not exempted from the requirements of the standards simply because his boss directs that he violate laws or ethical standards, so answer A is not correct. Park should have advised Hwang that the actions he was being asked to take were unethical and likely illegal and refused the directive to trade. The prohibition on using MNPI goes beyond the direct buying and selling of individual securities and extends to any related derivatives (e.g., swaps or option contracts), mutual funds, other alternative investments, so answer B is not correct. It would have been advisable for the private placement agents to ask Hwang and Park to sign a confidentiality agreement, establish a “fire wall” around the disclosure of that information, and agree not to trade on the information. But even absent such an agreement, Park is prohibited from trading on MNPI, therefore C is incorrect. Because the trading was based on MNPI, the trade was improper and Park’s conduct is unacceptable — answer D.

    This case is based on an enforcement action by both the US SEC and the Securities and Futures Commission of Hong Kong.


    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • Ethics in Practice: What I Do for Investment Success!

    Source: Jon Stokes
    Date Submitted: 07 Feb 2018
    Views: 336
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 6)

    Svetlana works for a publishing company writing an online financial newsletter that describes her investment philosophy and identifies intriguing investment opportunities. She is paid a salary plus incentive bonuses for every new subscriber. Svetlana routinely states that she makes $5,000 in investment returns every week, and that if readers followed her advice, they could too. Svetlana often includes success stories from readers, including the story of a reader who turned $200 into $1 million in six months using Svetlana’s investment techniques. Svetlana’s actions are
    1. acceptable because subscribers to her newsletter are not clients.
    2. acceptable because she is not guaranteeing investment success.
    3. unacceptable unless she includes stories of readers who followed her investing philosophy and were not successful.
    4. unacceptable if the investments are unsuitable for her subscribers.
    Analysis
    This case involves potential misrepresentation. CFA Institute Standard I(C): Misrepresentation states that members “must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.” This includes statements relating to past investment performance history. Does Svetlana misrepresent her past performance record and the success of her investments? That is not clear. Her statements regarding her weekly investment returns and the success stories of readers who follow her advice may be true. More facts are necessary. Assuming those statements are true, it is irrelevant whether she is making the statements to clients, potential clients, subscribers to her newsletter, or the investing public. Standard I(C) prohibits any misinformation regardless of the audience, so answer A is not correct. There is also no requirement that Svetlana include statements in her articles that counterbalance her claims (Answer C). It would be up to the interested person to inquire more deeply about her performance record to gauge its veracity. Svetlana would be required to respond truthfully to probing questions, such as “how many readers using your investment techniques have lost money?” And because there is no investment advisory relationship between Svetlana and those who may read her articles, she is not required to conduct a suitability analysis of the investments for anyone reading her newsletter (Answer D). (Although best practice would dictate that Svetlana include some general cautionary language in her articles recommending that readers ensure any investments they make are suitable to their financial goals, constraints, and circumstances). Finally, Standard I(C) prohibits members from guaranteeing clients any specific return on investments because most investments contain some element of risk that makes their return inherently unpredictable. But Svetlana does not provide guarantees because she qualifies her statements about expected performance by asserting that readers following her investment philosophy “could” earn regular returns; she doesn’t guarantee that they will. Answer B is correct.
    This question was based on facts from a CFA Institute Professional Conduct enforcement action.
     

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
     

     

     
     
  • Ethics in Practice: Using Erasable Ink Is Fine, Right?

    Source: Jon Stokes
    Date Submitted: 05 Feb 2018
    Views: 321
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 5)
    Huang is a newly hired client account representative for GWC Asset Management, an investment adviser for high-net-worth clients. Part of Huang’s responsibility is to assist each new client complete the extensive documentation needed to open an account. These documents give GWC access to client assets and the discretion to trade on behalf of the client. Because Huang is new to GWC, he is not completely familiar with firm procedures and is afraid of making mistakes with the documents. He uses erasable ink in completing the documentation so he can easily fix any mistakes without having to go back to the client for additional signatures. Huang’s actions are
    1. unacceptable under any circumstances.
    2. unacceptable unless disclosed to the clients.
    3. acceptable because he is providing efficient client service.
    4. acceptable if GWC is aware of this practice.
    ANALYSIS
    This case involves the duty of loyalty to both clients and employer. By using erasable ink, Huang is rendering the key client documents changeable and thus unreliable. Once signed, anyone with access can go back and alter the terms or provisions of the documents. CFA Institute Standard III(A): Loyalty, Prudence, and Care requires members to “act with reasonable care and exercise prudent judgment” and “act for the benefit of their clients.” Using erasable ink for legally binding financial documents does not constitute reasonable care and prudent judgment, and it potentially causes harm to the clients. Even if Huang engages in this conduct to try to provide efficient client service (Choice C), he is really trying to protect his own interests and make his job easier while opening the client up to potential harm. Even if he discloses to clients that their documentation can be changed after the fact, he (or anyone with access to the documents) would still have free rein to make any changes. Huang must get client permission regarding the specifics of any changes to these important legal documents to make them effective, making Choice B incorrect. It is irrelevant whether his employer, GWC, is aware of and acquiesces in the practice because the harm to the client remains (Choice D). In fact, engaging in this conduct without the knowledge of GWC would be a violation of CFA Institute Standard IV(A): Duties to Employers – Loyalty, which prohibits member form causing harm to their employer. Huang’s actions, if discovered, would cause great reputational damage for GWC with both the regulator and clients because the firm would have to go back through the process to redo all documentation. Finally, even if a client was aware of and gave permission to use erasable ink (or otherwise gave Huang or GWC permission to make changes to their documents without informing the client of what those changes were going to be), engaging in this conduct would make these documents ineffective and of no value. Huang would be violating the CFA Insitute Code of Ethics that requires members to act with integrity, competence, and diligence. Therefore, using erasable ink for client documents is inappropriate under any circumstances (Choice A).

    This case is based on facts provided by Nick Pollard, Managing Director of Asia Pacific for CFA Institute, gathered from his industry experiences.

     
     Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • Ethics in Practice: Buying and Selling at Same Time OK?

    Source: Jon Stokes
    Date Submitted: 05 Feb 2018
    Views: 133
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    Case (Week 4) 
    Meyers Associates is an investment firm providing both advisory and investment banking services. One of Meyers investment banking clients, IWEB (which manufactures and markets data storage products and cloud based software), wants to raise its stock price to facilitate a private offering, for which it will be using Meyers as its placement agent. George works for Meyers Associates as an investment adviser. To assist IWEB with its plans, George solicits several of his advisory clients to buy IWEB stock, and at the same time solicits other clients to sell IWEB stock, frequently effecting matched orders among his customers. For a 10-day period, these trades represented 48% of the total market volume of IWEB, and the price of the stock increased from $0.12 to $0.19 and then stabilized at $0.18 for the next several days. George’s actions are
    1. acceptable if the purchase and sale of IWEB stock fit within each of his advisory clients’ Investment Policy Statements (IPS).
    2. acceptable because he was acting to promote the interests of his client, IWEB.
    3. acceptable as long as he discloses to his advisory clients Meyer Associates’ investment banking relationship with IWEB.
    4. unacceptable.

    Analysis
    This case is about market manipulation. Market manipulation damages the interests of all investors and lowers investor confidence in capital markets by disrupting the smooth functioning and efficiency of those markets. CFA Institute Standard II(B): Market Manipulation prohibits members from “engaging in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.” George’s trading of IWEB stock for clients is distorting both the trading volume and the market’s price-setting mechanism for that stock for the purpose of misleading investors in IWEB stock. George engages in the trading to assist IWEB with its private offering, not to benefit his advisory clients. Therefore, even if the trades fit within the respective IPS of his clients, the trading is unethical, making choice A incorrect. One element of the CFA Institute Ethical Decision-Making Framework is identifying to whom a duty is owed. Oftentimes, there are conflicting duties that must be sorted out. Although George is attempting to benefit one client (IWEB) through the trading, he cannot do so at the expense of his advisory clients because he has a duty to all his clients to treat them fairly. And although investment professionals have a duty to work on behalf of clients, they have a greater duty to protect the integrity of financial markets. Engaging in market manipulation, even to assist clients, is unethical, making choice B incorrect. Choice C is also incorrect. While oftentimes investment professionals can mitigate conflicts of interest through disclosure, disclosure of the potential conflict in working for IWEB in an investment banking capacity, does not allow George to use his advisory client accounts to engage in market manipulation. George’s actions are unacceptable, choice D. (This case is based on a Financial Industry Regulatory Authority (FINRA) enforcement case from 2016.)

     Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • Better Late than Never? Corporate Social Responsibility (CSR) engagement after Product-harm Crises

    Source: Min Zhang ,Zhihui Sun ,Dejun Wu
    Date Submitted: 15 Dec 2017
    Views: 903
    Downloads: 4
    This is a conference paper presented at the 2017 CSEAR North Asia Conference.
  • The Information Content of Earning per Share and Social Contribution Value per Share in China

    Source: Teresa Chu,Yi Wang
    Date Submitted: 15 Dec 2017
    Views: 1287
    Downloads: 10
    This is a conference paper presented at the 2017 CSEAR North Asia Conference.
  • Ethics in Practice: To Refer or Not Refer?

    Source: Jon Stokes
    Date Submitted: 09 Feb 2018
    Views: 160
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 3)

    Raphael, an investment adviser for Enright Financial Solutions (EFS), enters into an understanding with a friend who is a lawyer regarding the referral of clients. Raphael will refer EFS clients needing legal services to the lawyer in return for the lawyer recommending clients needing financial advisory services to Raphael and EFS.  This arrangement is
    1. acceptable since there are no payments involved.
    2. acceptable as long as the lawyer discloses the arrangement to the clients he refers to Raphael.
    3. acceptable as long as EFS is aware of Raphael’s agreement with the lawyer.
    4. unacceptable.
    Analysis
    This case deals with a mutually beneficial referral arrangement whereby service professionals refer clients to one another. Although such an agreement is not necessarily unethical and may ultimately be beneficial for the clients, there is a potential for a conflict of interest that must be disclosed. CFA Institute Standard VI(C): Disclosure of Conflicts, Referral Fees requires members to disclose to the employer, clients, and prospective clients “any compensation, consideration, or benefit received from or paid to others for the recommendation for products of services.” This disclosure allows both clients and the employer to evaluate any partiality shown in the recommendation of services and the full cost of those services. Although there is no money changing hands between Raphael and his friend, there is mutual consideration and benefit. The fact that no money is exchanged would not preclude disclosure (Choice A). Choice B addresses the disclosure issue but places the onus of disclosure on the lawyer and not on Raphael. Standard VI(C) requires Raphael to disclose the referral arrangement to any clients he refers to the lawyer and any potential clients referred to him by his friend. Choice C also addresses the disclosure issue by correctly stating that Raphael must disclose the arrangement to his employer. But this does not go far enough because Standard VI(C) requires disclosure to be made to clients, prospective clients, AND the employer. Does Raphael disclose any information about the arrangement to this clients or EFS? The facts of the case do not mention that he made the appropriate disclosure. The CFA Institute Ethical Decision-Making Framework calls for you to identify all relevant facts before making a decision.  Assuming Raphael made no disclosure to his clients or employer, this arrangement would be unacceptable (Choice D).

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • Ethics in Practice: Keep Up Your Ethical Exercise! 

    Source: Jon Stokes
    Date Submitted: 14 Mar 2018
    Views: 142
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 2)
    Elizabeth is an investment manager at a wealth management firm with high-net-worth clients. When Elizabeth was hired a few years ago, her sister opened an investment account with the firm. Elizabeth has decided to leave the firm to set up her own boutique hedge fund with her colleagues. She asks her sister to close her existing account and put that money in the new hedge fund. Elizabeth’s request is:

    Answer Choices
    1. Acceptable since she has no obligation to keep her sister’s account at the wealth management firm.
    2. Unacceptable because she should not solicit her employer’s client to join the new fund.
    3. Unacceptable if she signed a non-compete agreement with her employer.
    4. Unacceptable if her hedge fund strategy is not suitable to her sister.
    Analysis
    The main ethical principle at issue in this case is Duty to Employer.  CFA Institute Standard IV(A): Duty to Employer – Loyalty, states that members “must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities” and must not “cause harm to their employer.”  In this case, Elizabeth could potentially cause harm to her employer by causing her sister to move her assets away from the wealth management advisor.  But this case also highlights a key element of the CFA Institute Ethical-Decision-Making Framework – to identify relevant facts before choosing a course of action.  Sometimes not all the relevant facts are known.  Is Elizabeth still working for her employer when she asks her sister to leave the firm?  The facts are not clear.  If so, her actions are unacceptable because she would be causing harm to her employer (choice B).  The fact that the client is a close relation is irrelevant, Elizabeth’s sister is still a client of the firm. If Elizabeth is no longer employed by the wealth manager advisor, soliciting former clients may not pose a problem.  But if she has left, does Elizabeth have a non-compete agreement with her employer prohibiting her from soliciting clients of her employer?  If so, she would be prohibited from soliciting clients, including her sister, to the new hedge fund.  Choice D brings up the issue of suitability of investments.  Even if Elizabeth has already left the firm and a non-compete agreement is not in force, she should only be soliciting clients for whom the investment is suitable under Standard III(C): Suitability which states that members must “determine than an investment is suitable to the client’s financial situation” before making a recommendation or taking action. Is the hedge fund a suitable investment for Elizabeth’s sister? The question doesn’t provide any clues. Even if the hedge fund is a suitable investment, Choice D still does not address the main issue of whether Elizabeth his harming her employer.  There may be no “obligation” to keep her sister’s investments at the wealth management firm (Choice A), but depending on the facts, it would be unethical for her to do so.  Properly applying the Ethical Decision-Making Framework calls for identifying the relevant facts.  All the choices could be correct, depending on facts that are not provided in the question.  We need to know more.
     

    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
  • Ethics in Practice: Developing Your Ethical Decision-Making Skills

    Source: Jon Stokes
    Date Submitted: 14 Mar 2018
    Views: 98
    Downloads: 0
    If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

    Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

    We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

    CASE (Week 1)
    David, an analyst for an asset management firm, attends a presentation for securities analysts at the headquarters of a manufacturing company. The analysts are very impressed with the presentation and ask the CEO many questions. After the meeting, the Head of Investor Relations invites all analysts to a club house for dinner and karaoke. Most of other analysts accept the invitation. Of the choices below, what do you believe David should do?

    Answer Choices
    1. Accept the invitation.
    2. Accept the dinner but not karaoke.
    3. Accept the invitation but disclose the invitation to his supervisor.
    4. Reject the invitation.
    Analysis
    The ethical principle at issue in this case is independence and objectivity.  The question turns on whether David compromises his independence and objectivity as an analyst by accepting an invitation to dinner and karaoke from representatives of the manufacturing company that he is researching. CFA Institute professional conduct Standard I(B) states that CFA Institute members “must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities” and must not “accept any gift, benefit…or consideration that reasonably could be expected to compromise their…independence and objectivity.” So, would dinner and a night of karaoke reasonably be expected to compromise David’s independence and objectivity? The appropriate course of action turns on how extravagant the benefit might be.  Modest gifts and entertainment in the ordinary course of sociable business interaction may be unlikely to sway an analyst’s opinion.
    Choice A assumes that the dinner and karaoke is not extravagant and would have no impact on David’s opinion of the company. But we need more facts to ensure that is the case. Cultural context should also be considered when making a decision. Dinner and karaoke may be modest and tame in some cultures but more extensive and extravagant in other settings. Awareness of cultural sensitivities and expectations are very important, especially for those who may be working outside of their familiar home region. Choice B attempts to steer a middle ground by having David only accept part of the entertainment, which may lessen the threat of a compromised analysis by reducing the benefit. In practice, this may be awkward to do and the dinner itself could still be extravagant. Choice C also attempts to compromise by suggesting David could accept the dinner/entertainment as long as the gift/benefit is disclosed to the employer, seemingly mitigating the potentially problematic conflict of interest. But for disclosure to be effective it must be adequate. There is no indication that David will disclose the benefit to the clients who will read David’s research report. They will therefore have no indication that the analyst writing the report was given a nice dinner and potentially fun-filled night on the town by the subject of the report. Best practice would suggest that David reject the invitation (Choice D) to avoid any question about his honesty and integrity.


    Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.
     
     
  • Moving from grey to black and white. Ethical behavior is not only best practice for our profession, but essential to good business.  Published in Asia Asset Management - November 2017.

    Source: Irene Cheung, CFA, CAIA, FRM
    Date Submitted: 10 Nov 2017
    Views: 1262
    Downloads: 21
    Life is full of rules. As toddlers, our parents teach us rules that keep us safe. As teenagers, we push boundaries and might explore things outside of accepted social rules, testing the water as we transition to adulthood. When joining the workforce, we enter a world where our moral compass—what we’ve been taught, how we think, and what we know— can be challenged. The situations we face may be complex and there may not be straightforward rules to follow. In life and in work, right and wrong brings moral and ethical dilemmas, and, given the global nature of business what may seem like a perfectly simple answer in one country could be completely inappropriate in another.
     
    “Moral clarity often blurs without a backdrop of shared attitudes, and without familiar laws and judicial procedures that define standards of ethical conduct, certainty is elusive” wrote Thomas Donaldson in a Harvard Business Review article ‘Values in Tension: Ethics Away from Home.’ He wrote this 20 years ago and it still holds true today. So how can we move from gray to black and white when it comes to ethical conduct?  
  • Is ESG a systematic risk factor for US equity mutual funds?

    Source: Ick Jin
    Date Submitted: 04 Nov 2017
    Views: 212
    Downloads: 0
    On the outperformance of responsible investing (RI) which incorporates environmental, social, and governance (ESG) into investment decisions, the empirical evidence to date is inconsistent from the viewpoint of ex-post performance. This paper tries to explain the nature of return differential between RI and conventional investing within the well-known risk-return paradigm. From the viewpoint of ex-ante equity risk premium, the five factor model of Fama and French [2015. “A Five-factor Asset Pricing Model.” Journal of Financial Economics 116: 1–22] combined with a ESG-related factor applies to returns on 1,425 US open-end equity funds for the period from April 2009 to December 2016. Empirical findings include that US open-end equity funds tend to hedge the ESG-related systematic risk, and that the exposure to ESG-related systematic risk is significantly priced in the market. The result implies that RI provides the downside protection against ESG-related systematic risk which is not reduced even through extensive diversification.
  • COOPERATIVE SUSTAINABILITY IN THE PHILIPPINES: Incorporating Ethical Values and Principles into the Organization

    Source: Christian Paul L. Fang
    Date Submitted: 16 Oct 2017
    Views: 91
    Downloads: 1
    This paper discusses the importance of incorporating ethical values and principles into cooperative strategy and decision-making in order to attain "cooperative sustainability" in the Philippines.
  • Strengthening Business Ethics to Boost SMEs

    Source:
    Date Submitted: 16 Oct 2017
    Views: 775
    Downloads: 4
    SMEs fuel the growth of the Philippine economy. However, despite their wide-spread presence across all industries, the segment’s growth has been hindered by unethical practices which cause barriers to finance, trade, internationalization and harmonized relationship with all stakeholders. This paper aims to explore the specifics of these business impediments, and introduce the existing initiatives by the government, highlighting the promotion of good ethical standards to boost the growth of SMEs’ business operations. 
  • Corporate Social Requirement

    Source: Giancarlo Parungao
    Date Submitted: 16 Oct 2017
    Views: 144
    Downloads: 1
    This paper focuses on the Corporate Social Responsibility aspect of the companies in the Philippines and the factors and reasons why corporations engage in such,
  • Inclusive Business in the Philippines

    Source:
    Date Submitted: 15 Oct 2017
    Views: 225
    Downloads: 6

    This paper tackles the role inclusive businesses play in our economic growth. We shall also be tackling specific companies and their programs geared towards inclusive business and poverty alleviation. Lastly, we shall seek means on promoting this business model so that more would participate in this initiative. 

  • The Filipino Family and its Influence on Business Ethics

    Source: Abigael Espejo
    Date Submitted: 13 Oct 2017
    Views: 816
    Downloads: 7
    Family-controlled businesses in the Philippines comprise 85% of all listed companies. This huge percentage is highly influenced by the culture of the Filipino family itself, which is shaped by the country’s history. The Filipino’s ethical belief is grounded upon the Catholic influence in the country - the most common judgment will rely on what is makasalanan and what is mabuting gawa. The Filipino family is the center of the society; it is the most basic unit that shapes an individual’s personality and perception of what is ethical or not. The culture is characterized by close family ties (attachment), the value of utang na loob and pakikisama, and the obligation of the parents and the children to each other. The purpose of this study is to understand how the Filipino family culture, traditions and beliefs influence the ethical practices of family-owned organizations in the Philippines.
  • Ethical considerations in the policy development and implementation of the Philippine National Identification System

    Source: Jan Michael Saniel
    Date Submitted: 10 Oct 2017
    Views: 2872
    Downloads: 5
    Ethical considerations in the policy development and implementation of the Philippine National Identification System
  • Rulings on Philippines Online Gambling Industry

    Source: Ru Li
    Date Submitted: 09 Oct 2017
    Views: 170
    Downloads: 1
    This paper focuses on discussing the regulation gaps between the Philippines and China in the online gaming industry, the hazards of allowing a robust growth of this sector, and the challenges for the local regulators in ruling the market practices, with consideration on ethical manners which need to be held in doing business for the sake of pursuing a common good for the whole society rather than purely aiming at a higher economic growth for the country.    
     
  • Mergers and acquisitions: how do you view their underlying substance?

    Source: Hong Kong Institute of Certified Public Accountants
    Date Submitted: 30 Aug 2017
    Views: 2852
    Downloads: 77
    Are you a shareholder or analyst with an interest in mergers and acquisitions? 
    The accounting standard-setters need your expertise. 

    We are aware that M&As are common and can take the form of group restructurings or third party acquisitions. There is usually no question that there is underlying substance to acquisitions with third parties - the transaction price typically represents the fair market value of the acquired business. But M&As within a group might arguably be different.

    The findings of this M&A survey will be published and will help us consider whether all M&As should be accounted and reported in the same way. 

    To participate, click on this link: http://survey.hkicpa.org.hk/index.php?sid=57118&lang=en, or download and email us the attached survey: outreachhk@hkicpa.org.hk
  • Asian Link

    Source: Dr Raymond Madden, FRSA, Neil Smith
    Date Submitted: 20 Aug 2017
    Views: 563
    Downloads: 0
    "Ethical issues in the financial services industry affect everyone, as almost all of society are consumers of its products and services.  Given the vital role that financial institutions play, moral hazards may be more acute and it is therefore unsurprising that the industry should be subject to the highest ethical standards.  Ethical dimensions create an environment based on trust and make economic transactions more predictable for producers and consumers".
  • The Business of Ethics

    Source: Dr Raymond Madden, CEO
    Date Submitted: 28 Jul 2017
    Views: 1432
    Downloads: 0
    "Restoring the trustworthiness of global business will be a long-haul and there are no short-cuts when it comes to trying to embed ethical behaviour in business DNA.  But the dialogue in global board rooms is beginning to change with the importance of corporate culture, behaviours and the causal links to incentives and rewards gradually being recognised.  Our international businesses will always have responsibilities that go way beyond compliance - you cannot regulate for good behaviour.  Sustainable improvements in culture and behaviour in banking and right across the business landscape can only be achieved if individual institutions, owners, investors and the people leading and managing them step up to the plate.  As Dr Madden's thought provoking book makes clear, responsibility and accountability have to move to the top of every Board agenda".  Dame Collete Bowe, Chairman, UK Banking Standards Board.
  • Are the New Auditor's Report Insightful?

    Source: Hong Kong Institute of Certified Public Accountants, Standard Setting Department
    Date Submitted: 26 Jul 2017
    Views: 1696
    Downloads: 0
    The Standard Setting Department of the Hong Kong Institute of Certified Public Accountants is conducting a survey on the new auditor's report of listed entities. Feedback from users of financial statements is important for us to know whether the new requirement serves users' needs, and if not what could be improved. http://survey.hkicpa.org.hk/index.php?sid=55433&lang=en
     
    The survey is open until the end of August. For enquiries: outreachhk@hkicpa.org.hk>


    Background of the new auditor's report
    From financial year ends 15 December 2016 onwards, auditor's reports of listed entities are required to describe key audit matters (KAMs) to provide greater transparency about the audit that was performed. Communicating KAMs assists intended users of financial statements in understanding matters that were of most significance in the auditor's professional judgement; and understanding the entity and areas of significant management judgement.
  • An Open Discussion on Current Market Situation

    Source: CFA Society Pakistan
    Date Submitted: 19 Jul 2017
    Views: 936
    Downloads: 0
    The Pakistan stock market has witnessed considerable turmoil in the past few weeks falling from a high of 52,876 in May to around 44,300 lately.  There have been various positive and negative factors at play – from inclusion in the MSCI Emerging Market Index followed by selling from investors coupled with political uncertainty exacerbating concerns on foreign exchange and economy.
                           
    Accordingly, CFA Society Pakistan has held a series of candid panel discussions with CEOs and CIOs of leading asset management companies and brokerage houses to understand what happened and what to expect going forward.
     
    You can view the panel discussions as given below and feel free to pass on to your colleagues, friends and family.
    -          Part 1: Sajjad Anwar, CFA,CIO NBP Fullerton Asset Management, Mohammad Sohail, CEO, Topline Securities, Muhammad Asad, CIO, Al Meezan Investment Management

    -          Part 2: Syed Suleman Akhtar, CFA, CIO, UBL Fund Managers, Mustafa O Pasha, CFA, CIO, Lakson Investments, Muhammad Asim, CFA, CIO, MCB Arif Habib Savings & Investments.

    -          Part 3: Raza Jafri, CFA, Director Research, Intermarket Securities, Muhammad Fawad Khan, Director Research, BMA Capital, Shamoon Tariq, CFA, Partner and Vice CIO, Tundra Fonder AB.
  • Implementing Ethical Culture across the Australian Financial Services Landscape

    Source: Richard Brandweiner, CFA, Susan Morey
    Date Submitted: 04 Jul 2017
    Views: 1924
    Downloads: 30

    The article aims to build awareness and knowledge of culture and the vital role it plays in the long-term sustainability of the financial services industry

    It invites readers to think about:
     
    • the worsening issue of cultural integrity and why it has become a concern for the financial services industry, specifically in Australia and at a broader global level
     
    • the purpose of the financial services industry, the importance of factors such as trust and reputation that are associated with culture based in high standards of integrity and professionalism vs short term market gains
     
    • the concept of steward ship of other people’s money and the dilemmas and conflicts for industry behind that concept of stewardship, the relevance of stewardship to industry’s moral compass and the relevance of culture in being good stewards
     
    • identifying what culture is, why it matters and why the community deserves an industry with strong cultural integrity to be stewards of their money
     
    • the role of professionalism in culture, how the foundations of culture are built and sustained through the core components of professionalism: competency, compliance and ethics
     
    • the benefits to industry that adopts and sustains such a culture

    *The article was first published in June 2017 and is in the current edition of the Journal of Financial Compliance.  
  • Outlook 2017

    Source: Dr Raymond Madden, FRSA, Neil Smith
    Date Submitted: 29 Jun 2017
    Views: 185
    Downloads: 0
    AIF, working with the Financial Services Professional Board (FSPB), conducted a study into the ethical climate in the financial services industry in Malaysia, including what safeguards are in place and what more needs to be done to retain the public’s trust.
  • The Finance Industry and Educational Providers Need Tight Relationships

    Source: Dan Daugaard
    Date Submitted: 12 Jun 2017
    Views: 200
    Downloads: 7
    A new CFA Institute study predicts large scale trends will have a significant impact on the investment industry. The landscape is expected to change dramatically and new skill sets will be necessary for investment professionals to be successful in this new environment. This is likely to produce fresh challenges for organisations providing education to the investment industry. They will need to adapt and construct educational services relevant for the industry of tomorrow. Some are evidently already moving towards a more engaged role. 
  • Earning the Trust

    Source: Raymond Madden, Kee Gek Choo
    Date Submitted: 05 Jun 2017
    Views: 15783
    Downloads: 0
    FOREWORD

    The global financial services landscape is changing rapidly. Questions of ethics have become leading concerns for regulators and industry alike in the wake of the 2008 Global Financial Crisis. While the general economic and investment climate is recovering, the future remains uncertain. Policies adopted by governments and central banks in response to the crisis have averted a catastrophe, but their longer term impacts on economies, the financial services industry and consumers remain unknown.

    Meanwhile, the public’s trust in the industry has been shaken by widespread evidence of questionable business practices and breaches of professional ethics leading to the 2008 crisis. It is not being helped by recurring incidents of misconduct involving prominent industry names at the international level. The general perception is more needs to be done to restore confidence in the sector.

    Two ongoing developments add to the urgency of restoring faith in the industry’s ability to act responsibly in keeping with government policy priorities and consumer expectations. One is the shift in the balance of economic power from the West to the East, with developing and emerging economies in Asia now assuming a greater share of future global growth. For a trading nation like Malaysia, this implies increased financial activity, more intense interaction with foreign markets and financial institutions, and greater exposure to global events and risks. The other is the accelerating trend towards digitalisation and FinTech. This covers a broad spectrum of financial products and services aided by digital technology, ranging from remote banking and cashless transactions to sophisticated tools that come with a different set of risks and rewards that are yet to be fully understood. These developments call for a higher level of confidence in the industry.

    The Financial Services Professional Board (FSPB), an industry initiative, was launched in Malaysia in September 2014 against this background. Its focus is on setting elevated standards of professionalism and ethics in the industry to regain public confidence and achieve sustainable growth. Its first initiative was a Code of Ethics launched in January 2016.

    The Asian Institute of Finance (AIF), in its role as the secretariat for FSPB, commissioned a survey of Malaysian industry practitioners to gauge the industry’s ethical health and to get a baseline reading of FSPB’s impact on the industry. The survey has identified a number of gaps in professionalism and ethics, and a significant role for FSPB to support the industry’s own initiatives to address these gaps. In presenting this report to the industry, AIF would like to convey its readiness to assist the industry leaders and professionals in their efforts to harmonise their existing codes of ethics and professional conduct, and to bring them on par with international norms.
  • Presentation deck on Key Sustainable & Green Finance Trends during ARX ESG forum  April 2017

    Source: Martina Macpherson
    Date Submitted: 04 May 2017
    Views: 2419
    Downloads: 42
    CFA Institute Asia-Pacific Research Exchange ESG series kicked-start in Hong Kong - Green Finance Forum
     
    On 27 April, CFA Institute co-hosted a green finance forum with the Hong Kong Society of Financial Analysts and the Hong Kong Financial Services Development Council (FSDC), a high-level government advisory body that conducts policy research and industry surveys for the formulation of proposals to the Government and regulators.  This is the second green finance forum organized by CFA Institute in Hong Kong, ARX’s second o2o event as well as ARX’s ESG Track maiden event. The forum attracted 140 attendees including CFA members, industry practitioners, think tanks, environmental and other NGOs.
     
    The evening began with a keynote speech delivered by Martina Macpherson, S&P Dow Jones Indices Head of Sustainability Indices on an overview of green finance and ESG trends. Up next Mary Leung, Head of Standards and Advocacy for CFA Institute Asia Pacific led a panel discussion featuring Martina and ESG experts from PwC, HSBC and AXA Investment Managers focusing on the intrinsic value of ESG. 

    The PowerPoint Presentation of Martina's keynote speech can be downloaded in the attachment.

    Overall the event was a great success with very positive feedbacks from both participants and panelists.  The next stop for the CFA Institute Asia-Pacific Research Exchange ESG Series will take place in Singapore on the 11th May 2017.
  • Customer Protection in the Controversial Industry: The Role of Responsible Gambling

    Source: Tiffany Leung
    Date Submitted: 17 Feb 2017
    Views: 183
    Downloads: 5
    An increasing body of work has identified ‘corporate social responsibility’ (CSR) as an institution, and has suggested that its institutionalised form may be deployed to pursue traditional business imperatives and avoid burdensome legislation. This article will examine how responsible gambling is understood in Macao’s gambling industry and why firms in Macao’s gambling industry engage in responsible gambling (RG). This study is primarily based on an in-depth examination and analysis of Macao’s gambling industry with 49 semi-structured interviews. This study gives an account of the ‘responsible gambling’ practised in the gambling industry in Macao to show that gambling companies make use of the institutionalized (unstated) characteristics of CSR to leverage political and economic privileges. Responsible gambling is presented as the central component of CSR, articulated through varied stakeholders, while responsible gambling in practice focuses symbolically and solely on employee protection. The study shows that gambling companies derive substantial legitimacy benefits from the institution of CSR, thus positioned.
  • Corporate social responsibility and innovation in management accounting

    Source: Narisa Tianjing Dai , Artie Ng, Guliang Tang
    Date Submitted: 17 Feb 2017
    Views: 321
    Downloads: 6
    In recent years, there has been increased consensus that corporate social responsibility (CSR) is significant for the sustainable development of companies and society as a whole. CSR is increasingly incorporated into mission statements and prioritised in strategic configurations of modern organisations (Mersereau and Mottis 2011; Bennett and James 1998). According to a 2009 survey conducted on Fortune 500 firms, CSR is becoming an increasingly prominent and accepted part of the corporate strategy agenda. However, there is very little understanding of how different control mechanisms are adopted to operationalise strategic agendas related to CSR. Against this backdrop, this research examines the way in which companies embed CSR in their MCS in an attempt to align the behaviour of organisational participants with strategic objectives concerning sustainability in China.
  • Chinese Investment in the Carbon Risky Canadian Oil and Gas Industry

    Source: Jonathan Hammond
    Date Submitted: 09 Feb 2017
    Views: 1484
    Downloads: 10
    Chinese investor Tri-Win International Investment Group Inc. (Tri-Win) acquired Calgary, Canada based oil and gas producer Hyperion Exploration Corporation (Hyperion) on January 9th 2015 for CAD$31.9 million taking the previously listed Toronto Venture Exchange traded company private. In the developing climate sensitive landscape of Canada, increasing importance is being placed on combatting climate change and putting a price on carbon dioxide emissions. Due to the carbon intensive production of unconventional Canadian oil and gas products, current and future Chinese investors within this industry must adequately quantify their financial exposure to carbon risk in their valuation models. This thesis seeks to critically analyze whether Chinese investor Tri-Win used a methodology for quantifying and valuing carbon risk with the acquisition of Canadian oil and gas producer Hyperion and if it was sufficient or not. The implications from this thesis for Chinese investors stem from a unique methodology for quantifying carbon risk in oil and gas investments within the country of Canada. Through this analysis, it will be shown that Tri-Win did not accurately quantify their exposure to carbon risk leading to significant future carbon risk exposure. This lack of accurate valuing of carbon risk exposed them to substantial impending financial liabilities with regards to an encumbering stricter landscape for carbon emitters.
  • CFA Institute Asset Manager Code Gives Firms Head Start on Operational Due Diligence

    Source: Irene Cheung, CFA, CAIA, FRM
    Date Submitted: 01 Dec 2016
    Views: 3506
    Downloads: 33
    Investment performance is certainly an important consideration for any investor, but operational failures can be a stumbling block to investors’ investment decisions. Hence, apart from generating competitive investment returns, investment managers also need to demonstrate their commitment to protecting investors’ best interests by adhering to fundamental ethical principles, professional conduct, applicable rules and regulations, and industry best practices if they want to build a sustainable business. This is where operational due diligence (ODD) comes in.
  • HKUST Risk Management and Business Intellegence (RMBI) Newsletter Issue 7

    Source: Chow Miu Lam, Hui Sin Hang, Tsang Wing Wah, Lee Kwok Ho, Tam Kiu Fai
    Date Submitted: 07 Nov 2016
    Views: 389
    Downloads: 0
    Risk Management in the Medical Sector. Risk Management can bring a better decision making and reduce the number of errors, so as to ensure a high quality and effective service being provided. In the past 20 years, the hongkong Hospital Authority (HA) showed great support to develop large scale computer-based systems to manage and reduce the risk within the healthcare sector. To have a deeper understadning on how the systems work, we have invited Dr. CP Wong, Chairman of Society of Medical Informatics Ltd to share with us the success and benefits in risk managment in Hong Kong public hospitals. Safety and Risk Managemnt in the Railway Industry. As an industry with over 15,000 employees, the railway industry is inevitably at risk for human mistakes, leading to a need for risk management measures to reduce operational errors in order to achieve its customer pledge. Let's examine this under serveral issues: benmarking, drivers' training and selection, and risk management and risk identification.
  • Crises and Central Banks

    Source: Ishwar Chidambaram
    Date Submitted: 02 Nov 2016
    Views: 3568
    Downloads: 288
    A post-crisis look at the increasingly fragmented monetary policies of global Central Banks and the implications for Main Street
  • Islamic Finance: Ethics, Concepts, Practice

    Source: Usman Hayat, CFA, Adeel Malik, PhD
    Date Submitted: 22 Sep 2018
    Views: 406
    Downloads: 9
    Islamic economic thought and finance are rooted in Islamic ethics. Their ideals and means are not, however, exclusive to Islam. The principles of Islamic finance emphasize market-based risk-sharing modes of financing that promote assets and enterprise, deploy finance in service of the real economy, and facilitate redistribution of wealth and opportunity. Modern Islamic financial practices, however, privilege legal form over economic substance, which creates an expectations gap between Islamic finance’s theory and practice. In the wake of the global financial crisis of 2007–2008, the ideas underlying Islamic finance appeal to those more concerned with the broader impact of finance on society.
  • Making The Whole Greater Than The Sum Of Its Parts

    Source: Eddie Chan
    Date Submitted: 14 Oct 2016
    Views: 980
    Downloads: 10
    The investigative work of Professional Conduct has always been associated with words like secretive, mysterious, or private. That is only part of our story in Professional Conduct. Read on to find out more about our work in Professional Conduct and volunteering opportunities to help make a meaningful difference -- the CFA brand is important to protect, so is market integrity and ethical standards.
  • The Global Equity Premium Revisited: What Human Rights Imply for Assets' Purchasing Power

    Source: Jedrzej Bialkowski, Ehud I. Ronn
    Date Submitted: 18 Sep 2016
    Views: 17
    Downloads: 0
    In this paper, we argue that past computations equity risk premium did not properly account for the financial implications of political collapse on property/civil/human rights. Accordingly, we show that past calculations overstated the equity risk premium. We provide an estimate of the equity risk premium that is corrected for lack of basic rights, demonstrating the important changes in this estimate over time.
  • Code and Standards: Are You Living Up To Your Annual Pledge?

    Source: Irene Cheung, CFA, CAIA, FRM
    Date Submitted: 15 Aug 2016
    Views: 436
    Downloads: 2
    This is a blog posted on CFA Institute's website on 29 June 2016.
  • Tokyo as an International Financial Centre

    Source: Laurel Teo, CFA
    Date Submitted: 18 Jul 2016
    Views: 653
    Downloads: 17
    PPT presentation pertaining to the official launch of the research paper by the Japan CFA Society on the 15th of July 2016.
  • 東京は国際金融センターになれるか?

    Source: 原田 武嗣, CFA, 瀬尾 周一, CFA
    Date Submitted: 18 Jul 2016
    Views: 654
    Downloads: 15
    Research paper by the Japan CFA Society publicly released on the 15th of July 2016.
  • Tokyo as an International Financial Centre

    Source: Taketsugu Harada, CFA,Shuichi Seo, CFA
    Date Submitted: 18 Jul 2016
    Views: 722
    Downloads: 15
    Research paper by the Japan CFA Society publicly released on the 15th of July 2016.
  • GIPS标准下 对冲基金经理的解决方案

    Source: Coleman C.J. McKinstry, CIPM
    Date Submitted: 13 Jul 2016
    Views: 256
    Downloads: 0
    This article appears on CFA Institute Hedge Fund Journal 2016 issue, season 1.
  • 《基金业斗士先锋创始人 ——约翰·博格毕生将投资人放 在第一位》

    Source: Murad J. Antia, CFA
    Date Submitted: 13 Jul 2016
    Views: 442
    Downloads: 5
    This article appears on CFA Institute Hedge Fund Journal 2016 issue, season 1.
  • Paul Smith, CFA: “Let’s Make the World a Better Place for Investors Everywhere”

    Source: Paul Smith, CFA
    Date Submitted: 03 Jul 2016
    Views: 470
    Downloads: 3
    This blog is posted on CFA Institute's website on 12 May 2016.
  • Code and Standards: Are You Living Up To Your Annual Pledge?

    Source: Irene Cheung, CFA, CAIA, FRM
    Date Submitted: 29 Jun 2016
    Views: 1810
    Downloads: 14
    A blog post on a recent CFA Society Sri Lanka town hall meeting that touched on improving financial market integrity, putting investors first, and upholding the highest standards of ethics and business practices.
  • The Case for Financial Sector Liberalization in China

    Source: Tony Tan, DBA, CFA
    Date Submitted: 29 Jun 2016
    Views: 278
    Downloads: 0
    This is a blog posted on CFA Institute's website on 14 November 2013.
  • The Price of Growth: Toxic Smog in China and Elsewhere

    Source: Larry Cao, CFA
    Date Submitted: 29 Jun 2016
    Views: 277
    Downloads: 1
    This is a blog posted on CFA Institute's website on 7 April 2014.
  • Shadow Banking Is Hurting China’s Banks — And That’s a Good Thing

    Source: Paul Smith, CFA
    Date Submitted: 29 Jun 2016
    Views: 241
    Downloads: 1
    This is a blog posted on CFA Institute's website on 10 March 2014
  • Where to Invest in Emerging Markets: Lessons from the Taper Tantrum

    Source: Larry Cao, CFA
    Date Submitted: 23 Jun 2016
    Views: 248
    Downloads: 0
    This is a blog posted on CFA Institute's website on 10 February 2015.
  • 公平的证券交易所

    Source: Sherree Decovny
    Date Submitted: 16 Jun 2016
    Views: 298
    Downloads: 0
    This article appears on CFA Institute hedge fund journal 2015 issue, season 1.
  • 显微镜下的微秒

    Source: Sherree DeCovny
    Date Submitted: 16 Jun 2016
    Views: 294
    Downloads: 0
    This article appears on CFA Institute hedge fund journal 2015 issue, season 1. The original article appeared on CFA Institute Magazine, July/August 2014, Volume 25 Issue 4.
  • 生命周期投资: 金融教育及消费者保护

    Source: Zvi Bodie, Laurence B. Siegel, Lisa Stanton, CFA
    Date Submitted: 15 Jun 2016
    Views: 291
    Downloads: 1
    This article appears on CFA Institute hedge fund journal 2013 issue, season 2. The original article appears on CFA Institute's official website: http://cfainstitute.org/learning/products/publications/contributed/privatewealth/Documents/rf_summary_life_cycle_investing.pdf
  • 资产管理公司 专业行为准则将成趋势

    Source: 梁慧芝, CFA
    Date Submitted: 15 Jun 2016
    Views: 589
    Downloads: 1
    This article appears on CFA Institute hedge fund journal 2013 issue, season 2.
  • 证券研究: 每个卖方分析师 都应知道的事

    Source: Rob Gowen, CFA
    Date Submitted: 15 Jun 2016
    Views: 337
    Downloads: 2
    This article appears on CFA Institute hedge fund journal 2013 issue, season 2. The original article appears on CFA Institute's official website: http://annual.cfainstitute.org/2013/05/25/securitiesresearch-what-every-sell-side-analyst-should-know/
  • 投资者向审计师 寻求更大价值

    Source: Vincent Papa, CFA
    Date Submitted: 14 Jun 2016
    Views: 289
    Downloads: 0
    This article appears on CFA Institute hedge fund journal 2013 issue, season 2. The original article appears on CFA Magazine, July/August 2013, Vol. 24, No. 4: 8.
  • Trade Management Guidelines

    Source: CFA Institute
    Date Submitted: 13 Jun 2016
    Views: 644
    Downloads: 4
    This guideline appeared on CFA Institute's website in November 2004.
  • Research Objectivity Standards

    Source: CFA Institute
    Date Submitted: 13 Jun 2016
    Views: 553
    Downloads: 2
    This appeared on CFA Institute's website in October 2004.
  • CFA Institute Soft Dollar Standards (corrected October 2011)

    Source: CFA Institute
    Date Submitted: 13 Jun 2016
    Views: 274
    Downloads: 1
    This appeared on CFA Institute's website in November 2004.
  • Investment Management Code of Conduct for Endowments, Foundations, and Charitable Organizations

    Source: Kurt Schacht, JD, CFA, Jonathan J. Stokes, JD, Glenn Doggett, CFA
    Date Submitted: 13 Jun 2016
    Views: 566
    Downloads: 3
    This paper appeared on CFA Institute's website in September 2010.
  • Code of Ethics and Standards of Professional Conduct (effective 1 July 2014)

    Source: CFA Institute
    Date Submitted: 13 Jun 2016
    Views: 279
    Downloads: 1
    This appeared on CFA Institute's website in June 2014.
  • Standards of Practice Handbook, Ninth Edition (effective through 30 June 2010)

    Source: CFA Institute
    Date Submitted: 13 Jun 2016
    Views: 634
    Downloads: 1
    This handbook appeared on CFA Institute's website in June 2005. It is effective from 1 July 2005 to 30 June 2010.
  • Standards of Practice Handbook, Tenth Edition (effective 1 July 2010 through 30 June 2014)

    Source: CFA Institute
    Date Submitted: 13 Jun 2016
    Views: 251
    Downloads: 1
    This handbook appeared on CFA Institute's website in June 2010. It is effective from 1 July 2010 to 30 June 2014.
  • Standards of Practice Handbook, Eleventh Edition (effective 1 July 2014)

    Source: CFA Institute
    Date Submitted: 13 Jun 2016
    Views: 552
    Downloads: 3
    This handbook appeared on CFA Institute's website in June 2014. It is effective from 1 July 2014.
  • Code of Conduct for Members of a Pension Scheme Governing Body

    Source: CFA Institute
    Date Submitted: 12 Jun 2016
    Views: 599
    Downloads: 2
    It is available in English, Dutch and German.
  • Asset Manager Code of Professional Conduct

    Source: Kurt N. Schacht, JD, CFA, Jonathan J. Stokes, JD, Glenn Doggett, CFA
    Date Submitted: 12 Jun 2016
    Views: 718
    Downloads: 13
    Asset Manager Code of Professional Conduct is currently available in 13 languages. They are Arabic, Chinese, English, French, German, Indonesia, Italian, Japanese, Korean, Portuguese, Russian, Spanish and Thai.
  • Corporate Governance in Japan — Plenty of Room for Improvement

    Source: Matt Orsagh, CFA, CIPM
    Date Submitted: 08 Jun 2016
    Views: 282
    Downloads: 1
    This is a blog posted on CFA Institute's website on 4 November 2011.
  • Ethics Wake-up Call: Change Behavior before It’s Too Late

    Source: Tony Tan, DBA, CFA
    Date Submitted: 07 Jun 2016
    Views: 385
    Downloads: 0
    This is a blog posted on CFA Institute's website on 22 January 2013
  • The Role of Financial Advisers: What Should Clients Expect?

    Source: Tony Tan, DBA, CFA
    Date Submitted: 07 Jun 2016
    Views: 620
    Downloads: 1
    This is a blog posted on CFA Institute's website on 6 May 2013.
  • Turning Tide: Hong Kong Court Order Forces Insider Trader to Pay Victims

    Source: Tony Tan, DBA, CFA
    Date Submitted: 07 Jun 2016
    Views: 447
    Downloads: 0
    This is a blog posted on CFA Institute's website on 17 December 2013.
  • HFT Strategies: Why the Sudden Fuss over Speed Advantages?

    Source: Tony Tan, DBA, CFA
    Date Submitted: 07 Jun 2016
    Views: 257
    Downloads: 0
    This is a blog posted on CFA Institute's website on 2 June 2014.
  • Australian Review: HFT and Dark Trading Don’t Merit Further Regulation

    Source: Sviatoslav Rosov, PhD, CFA
    Date Submitted: 07 Jun 2016
    Views: 285
    Downloads: 1
    This is a blog posted on CFA Institute's website on 16 November 2015.
  • Can Asia Push Back the Tide of International Financial Regulations?

    Source: Paul Smith, CFA
    Date Submitted: 07 Jun 2016
    Views: 270
    Downloads: 0
    This is a blog posted on CFA Institute's website on 9 January 2013.
  • Give Hong Kong’s New Financial Services Development Council a Chance

    Source: Paul Smith, CFA
    Date Submitted: 07 Jun 2016
    Views: 422
    Downloads: 1
    This is a blog posted on CFA Institute's website on 24 February 2013.
  • From Bust to Boom: Southeast Asia’s Capital Markets Getting It Right This Time

    Source: Paul Smith, CFA
    Date Submitted: 07 Jun 2016
    Views: 443
    Downloads: 2
    This is a blog posted on CFA Institute's website on 16 April 2013.
  • Alibaba IPO: What It Says about Shareholder Rights in Asia

    Source: Paul Smith, CFA
    Date Submitted: 07 Jun 2016
    Views: 434
    Downloads: 2
    This is a blog posted on CFA Institute's website on 21 October 2013.
  • Blurry Images: Investors, Regulators, Auditors Missed Olympus Warning Signs

    Source: Padma Venkat, CFA
    Date Submitted: 07 Jun 2016
    Views: 268
    Downloads: 0
    This is a blog posted on CFA Institute's website on 22 November 2011.
  • Déjà vu: South Korean Banking Crisis Hits Again

    Source: Padma Venkat, CFA
    Date Submitted: 07 Jun 2016
    Views: 299
    Downloads: 0
    This is a blog posted on CFA Institute's website on 28 June 2012.
  • Asian Corporate Boards: Increase Lens Power to See Unknown Risks

    Source: Padma Venkat, CFA
    Date Submitted: 07 Jun 2016
    Views: 266
    Downloads: 0
    This is a blog posted on CFA Institute's website on 25 July 2012.
  • “Front-Running” in India Challenges Regulators

    Source: Padma Venkat, CFA
    Date Submitted: 07 Jun 2016
    Views: 266
    Downloads: 0
    This is a blog posted on CFA Institute's website on 21 December 2012.
  • India and Singapore Regulators Fill Ethics Void with Strict Financial Rules

    Source: Padma Venkat, CFA
    Date Submitted: 07 Jun 2016
    Views: 403
    Downloads: 2
    This is a blog posted on CFA Institute's website on 5 February 2013.
  • Mis-selling and Investor Protection in Asia Pacific (Video)

    Source: Padma Venkat, CFA
    Date Submitted: 07 Jun 2016
    Views: 266
    Downloads: 0
    This is a blog posted on CFA Institute's website on 23 April 2013. Video can be played in the Reference UFL below.
  • Hong Kong Tiger Asia Case: Are Insider Traders Losing Their Stripes?

    Source: Padma Venkat, CFA
    Date Submitted: 07 Jun 2016
    Views: 427
    Downloads: 1
    This is a blog posted on CFA Institute's website on 9 May 2013.
  • Mis-selling of Financial Products: How Are Investors Protected in Today’s Marketplace?

    Source: Padma Venkat, CFA
    Date Submitted: 07 Jun 2016
    Views: 343
    Downloads: 0
    This is a blog posted on CFA Institute's website on 10 February 2014.
  • Non-Preemptive Share Issues in Asia: Reforming Rules to Protect Investors

    Source: Padma Venkat, CFA
    Date Submitted: 07 Jun 2016
    Views: 315
    Downloads: 0
    This is a blog posted on CFA Institute's website on 2 March 2014.
  • Institutional Investors: What Is Their Role as Owners of Public Companies?

    Source: Padma Venkat, CFA
    Date Submitted: 07 Jun 2016
    Views: 608
    Downloads: 1
    This is a blog posted on CFA Institute's website on 15 April 2014.
  • Toshiba Accounting Scandal: A Corporate Culture Problem

    Source: Mohini Singh, ACA
    Date Submitted: 07 Jun 2016
    Views: 753
    Downloads: 18
    This is a blog posted on CFA Institute's website on 30 October 2015.
  • Toshiba Accounting Scandal: Should Auditor Ernst & Young ShinNihon Get a Mulligan?

    Source: Matt Waldron
    Date Submitted: 07 Jun 2016
    Views: 749
    Downloads: 5
    This is a blog posted on CFA Institute's website on 28 July 2015.
  • Toshiba Scandal: Should Outgoing CFO Have Chaired the Audit Committee?

    Source: Matt Waldron
    Date Submitted: 07 Jun 2016
    Views: 278
    Downloads: 0
    This is a blog posted on CFA Institute's website on 13 August 2015.
  • Retail Investment Funds Performance in Asia Pacific: What Every Investor Should Know

    Source: Lee Kha Loon
    Date Submitted: 06 Jun 2016
    Views: 259
    Downloads: 0
    This is a blog posted on CFA Institute's website on 30 May 2012.
  • Treasury China Trust: Governance Clouds Value

    Source: Lee Kha Loon
    Date Submitted: 06 Jun 2016
    Views: 272
    Downloads: 1
    This is a blog posted on CFA Institute's website on 3 October 2012.
  • CFA Institute Study: Harmonize Standards for Mutual Fund Fee and Performance Reporting Across Asia

    Source: Lee Kha Loon
    Date Submitted: 06 Jun 2016
    Views: 294
    Downloads: 0
    This is a blog posted on CFA Institute's website on 16 January 2013.
  • Portfolio Holdings: Would More Disclosure in Mutual Funds Periodic Reporting Help?

    Source: Lee Kha Loon
    Date Submitted: 06 Jun 2016
    Views: 258
    Downloads: 1
    This is a blog posted on CFA Institute's website on 17 February 2013.
  • 2014 Market Outlook for Asia Pacific: When Diversity Strengthens Advocacy

    Source: Laurel Teo
    Date Submitted: 06 Jun 2016
    Views: 274
    Downloads: 0
    This is a blog posted on CFA Institute's website on 18 December 2013.
  • AIJ Investment Advisors: Made (off) in Japan

    Source: John Rogers
    Date Submitted: 06 Jun 2016
    Views: 273
    Downloads: 1
    This is a blog posted on CFA Institute's website on 27 February 2012
  • Asia Pacific: Mis-selling Declines in Singapore, but Caution Still Warranted

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 396
    Downloads: 0
    This is a blog posted on CFA Institute's website on 23 December 2011.
  • Happy Chinese New Year! Asia Makes Strides in Investor Protection

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 602
    Downloads: 0
    This is a blog posted on CFA Institute's website on 2 February 2012.
  • Investors Gain As India Tightens Reins on Asset Managers and Financial Advisers

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 261
    Downloads: 0
    This is a blog posted on CFA Institute's website on 2 March 2012.
  • AIJ Fallout Casts Harsh Spotlight on Japan’s Pension Fund Managers

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 278
    Downloads: 0
    This is a blog posted on CFA Institute's website on 7 March 2012.
  • Hontex IPO: How Did It Happen and Who’s to Blame?

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 436
    Downloads: 2
    This is a blog posted on CFA Institute's website on 29 June 2012.
  • Corporate Governance in Asia: Regulatory Landscape Urges Better Shareowner Communications

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 615
    Downloads: 2
    This is a blog posted on CFA Institute's website on 9 August 2012.
  • Financial Sector Regulation Heats up in India amid Sahara Case

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 346
    Downloads: 1
    This is a blog posted on CFA Institute's website on 12 September 2012.
  • CFA Institute: Market Fraud, Mis-selling Concerns Cloud Asia-Pacific Outlook

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 267
    Downloads: 0
    This is a blog posted on CFA Institute's website on 12 December 2012.
  • Insider Trading: Does It Make You an Outsider?

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 590
    Downloads: 0
    This is a blog posted on CFA Institute's website on 30 January 2013.
  • Mis-selling: An Ethical Issue Facing Asia-Pacific Markets

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 362
    Downloads: 0
    This is a blog posted on CFA Institute's website on 2 April 2013.
  • MRI International Scandal: Another Reason Ethical Behavior is Needed in the Marketplace

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 448
    Downloads: 3
    This is a blog posted on CFA Institute's website on 2 May 2013.
  • Asia-Pacific Asset Managers: No Compliance with CFA Institute Asset Manager Code Is Red Flag

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 261
    Downloads: 0
    This is a blog posted on CFA Institute's website on 30 May 2013.
  • Asset Manager Code of Professional Conduct: Benefits for Investment Professionals

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 418
    Downloads: 1
    This is a blog posted on CFA Institute's website on 19 August 2013.
  • Interpreting Client Entertainment as Part of the Pension Trustee Code

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 390
    Downloads: 0
    This is a blog posted on CFA Institute's website on 23 October 2013.
  • The Role of Ethics in Shaping the Future of Hong Kong’s Investment Industry

    Source: Alexander Flatscher
    Date Submitted: 06 Jun 2016
    Views: 386
    Downloads: 0
    This is a blog posted on CFA Institute's website on 26 January 2014.
  • Share Placement and Rights Issues: What is the Role of Investor Education?

    Source: Alan Lok
    Date Submitted: 06 Jun 2016
    Views: 367
    Downloads: 1
    This is a blog posted on CFA Institute's website on 21 May 2014.
  • Buyer Beware: the Common Traits of Investment Product Scams

    Source: Alan Lok
    Date Submitted: 06 Jun 2016
    Views: 684
    Downloads: 2
    This is a blog posted on CFA Institute's website on 5 August 2014.
  • End the Silent Treatment: Why Regulators Should Promote Market-Fraud Prevention Efforts

    Source: Alan Lok
    Date Submitted: 06 Jun 2016
    Views: 538
    Downloads: 2
    This is a blog posted on CFA Institute's website on 14 August 2014.
  • Chinese Shadow Banking: Risks and Rewards

    Source: Alan Lok
    Date Submitted: 05 Jun 2016
    Views: 572
    Downloads: 5
    This is a blog posted on CFA Institute's website on 23 December 2014.
  • Insider Trading: Is China Serious about Cleaning Up Its Capital Market?

    Source: Alan Lok
    Date Submitted: 05 Jun 2016
    Views: 287
    Downloads: 1
    This is a blog posted on CFA Institute's website on 25 February 2015.
  • To Reform Chinese Capital Market, Is Government ‘Cooking a Frog in Warm Water’?

    Source: Alan Lok
    Date Submitted: 05 Jun 2016
    Views: 306
    Downloads: 2
    This is a blog posted on CFA Institute's website on 14 May 2015.
  • Portfolio Pumping in Singapore — What the Numbers Tell Us

    Source: Alan Lok
    Date Submitted: 05 Jun 2016
    Views: 636
    Downloads: 3
    This is a blog posted on CFA Institute's website on 27 December 2015.
  • Setting the right tone from the top published by Asia Asset Management

    Source: David Macfarlane, Asia Asset Management,Philippa Allen, CEO, ComplianceAsia Consulting,Irene Cheung, Director, Standards of Practice, Asia Pacific, CFA Institute,Joanna Pearson, Partner, Simmons & Simmons,Mohammad Reza, Director, JWS Asia Law Singapore
    Date Submitted: 08 May 2016
    Views: 444
    Downloads: 5
    Asset management is about getting the most out of an asset’s life or “getting more bang for the buck”. Owners and operators stand to reap rewards from improved performance and greater reliability if they protect and extend the lives of their investments using best-practice asset management techniques. While asset managers suffered massive losses during the 2007/2008 global financial crisis (GFC), they were not exhibiting the risky behavior that caused it. However, improving operational transparency and governance are important concerns and goals for asset managers, especially as investors become more astute and regulators enforce more rules and regulators on the industry. Asia Asset Management talks to a representative from a global association of investment professionals, a financial industry and compliance expert, and some legal professionals to better understand the evolution of the asset management industry in terms of financial conduct.
  • The Truth Behind Stockholder's Meetings

    Source: Nicole Florendo
    Date Submitted: 26 Mar 2016
    Views: 644
    Downloads: 0
    The Culture behind Stockholder's Meetings.
  • The Importance of Culture

    Source: John Fraser
    Date Submitted: 23 Mar 2016
    Views: 731
    Downloads: 0
    This is a lunchtime address at the ASIC annual forum 2016 by John Fraser, Secretary to the Treasury on the topic: "The Importance of Culture" In his closing remarks, he said this: "All of us involved in the financial sector have to realise that if community expectations are not being met, the result may well be more prescriptive rules, which may over time not be a good outcome for industry or the general public. As I said at the outset, the world in which we find ourselves in is one in which the cultivation and maintenance of a robust institutional culture will be a key determinant of success. Rules and regulations will adapt to these circumstances but one thing should be a constant – ethical and honest behaviour flowing from the right culture in all parts of the economy."
  • Ghandi's Seven Deadly Sins

    Source: Abbygayle M. Estrella
    Date Submitted: 18 Mar 2016
    Views: 300
    Downloads: 8
    A commentary of a business student's view of the world based on Mahatma Ghandi's "seven deadly sins"
  • An Empirical Analysis of Credit Card Delinquency among BPO Employees (Philippines)

    Source: Abelardo Dulay, Abigail Diente, Laline Tabuzo, Alvia Lejano, Wilma Valenzuela
    Date Submitted: 16 Mar 2016
    Views: 621
    Downloads: 8
    An Empirical Analysis of Credit Card Delinquency among BPO Employees (Philippines)
  • The Role of Financial Advisers: What Should Clients Expect?

    Source:
    Date Submitted: 01 Mar 2016
    Views: 588
    Downloads: 0
    This blog was posted on CFA INstitute's website on 6 May 2013
  • Asia’s Growing Pains: The “Crowding-Out” Effect of Financial Regulation

    Source: Tony Tan
    Date Submitted: 01 Mar 2016
    Views: 622
    Downloads: 0
    This blog was posted on CFA INstitute's website on 19 February 2013.
  • Sri Lankan Regulator Explains Country’s Capital Markets Turnaround Strategy

    Source: Tony Tan
    Date Submitted: 01 Mar 2016
    Views: 767
    Downloads: 0
    This blog was posted on CFA Institute's website on 9 June 2013
  • Turning Tide: Hong Kong Court Order Forces Insider Trader to Pay Victims

    Source:
    Date Submitted: 01 Mar 2016
    Views: 416
    Downloads: 0
    This blog was posted on CFA Institute's website on 17 December 2013
  • Board of Director Effectiveness and Earnings Conservatism: Preliminary Australian Analysis

    Source: Nigar Sultana, J-L-W. Mitchell Van der Zahn, Inderpal Singh
    Date Submitted: 24 Feb 2016
    Views: 280
    Downloads: 11
    Overarching objective is to examine influence of board of director effectiveness on the extent of earnings conservatism among Australian listed firms.