CFA Standard 3
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The document outlines Standard III, which focuses on the duties of loyalty, prudence, and care that investment professionals owe to their clients. It emphasizes the importance of prioritizing client interests, providing prudent portfolio management, and ensuring fair dealing in investment recommendations. Additionally, it discusses the need for comprehensive client assessments and written investment policy statements to guide suitable investment actions and adherence to fiduciary responsibilities.
CFA Standard 3
- 1. STANDARD III DUTIES TO CLIENTS
- 2. GROUP - 3 Md. Mehedi Hassan Bappy – 16221021 Ridwanul Azim – 16221023 Debanik Chakraborty – 16221025 Nazia Yousuf - 16221027
- 3. STANDARD III (A) Loyalty, Prudence & Care
- 4. HIGHLIGHTS 1) Understanding the application of Loyalty, P Prudence & Care 2) Identifying actual investment client 3) Developing Client’s Portfolio 4) Soft Commission Policies 5) Proxy Voting Policies
- 5. Major Components of Standard 3 (A) • Duty of Loyalty • Duty of Reasonable Care • Duty of Prudence
- 6. About Standard 3 (A) • Client Interest is Paramount • Responsibility to client: Duty of loyalty & Duty to exercise reasonable care • Same level of prudence, diligence, judgment & care as would have been in case of his own same circumstances • Clients portfolio management requires prudence by following investment parameters set by client, in terms of governing documents (Trust docs, investment management agreement) & balancing risk & return
- 7. About Standard 3 (A) • Acting so prudently that all possible harms to clients are avoided • A single standard of conduct described here benefits investors by establishing a benchmark for the duties of loyalty, prudence and care & clarifies all CFA members, candidates (Regardless of title & position) are bound to comply with these fundamental responsibilities • Clients become certain about the standard the CFA member should follow • Must understand the degree of effective control they have on clients asset. The more it is the more is the responsibilities
- 8. Understanding the application of loyalty, prudence & care • Fiduciary Relationship: Enhanced position of Trust (more responsibility than other business relation) • They must work in best interest of the clients (which is similar to fiduciary relation) • Working in Respective areas for clients requires prudency in that respective works (Like- Advising, Trade Execution etc.) • Need to show care by operating within the clients investment instructions
- 9. Understanding the application of loyalty, prudence & care • Detailed discussion is necessary to make clients clear about the investment limitations, arrangements & opportunities • Limitation- like advising only about firm’s proprietary products, no other market products • Best Products are to be Recommenced based on risk tolerance level & clients objectives • Personal choice & Personal benefit must be avoided while choosing products for client.
- 10. Identifying Actual Investment Client • Client need to be identified to whom we are responsible • Individual Clients are easy to identify but in pension fund & trusts ultimate beneficiaries are the clients. • Sometimes there is no client or beneficiaries, then Specific mandate of that investing body is given loyalty care • All investors benefit must be focused rather than single investors benefit • Again not only overall benefit is concerned but also the avoiding the potential conflicts of interest • Loyalty differs based on who is the client, whether a single man, a single company or public as a whole.
- 11. Developing clients portfolio • Client knows less than the manager, so he must trust manager • Again, manager should not create any disparity • He must take investment objectives, constraints of client into consideration & justify which project is the most appropriate as per risk & return involved there • Long term strategies should also be recommended • Conflict of interest between firm & client must be identified & expressed properly. (prohibition, risk level)
- 12. Soft Commission Policies: • Soft Dollars or Soft Commissions Services: Practice of purchasing research services & selecting brokerage firms by paying more brokerage commissions to them than usual for client portfolio management. • It is not an act of disloyalty if a better brokerage firm & better research services are made available for the clients. But most of the time it serves manager more than the clients, hence proving itself disloyal act. So it should be avoided.
- 13. Proxy Voting Rights • Voting Proxies in an informed & responsible manner • Failing to vote, casting vote without thinking about impact & voting blindly supporting management committee violates the standard • All proxy voting policies must be disclosed to the clients
- 14. STANDARD III (A) Recommendation Procedures for Compliance
- 15. Regular Account Information • An Itemized statements should be submitted on quarterly basis showing debit, credit & transactions done in clients account • Where the assets are to be maintained & where to move. • Client’s asset must be kept separately from all other parties assets (including member’s own asset)
- 16. Client Approval • Any doubtable matter should be expressed in written to the client for his approval
- 17. 1 Follow all applicable Rules & Regulations 2 3 4 Establish the Investment objectives of clients Consider all the information when taking actions (Client’s needs & circumstances) Diversify to reduce loss (unless it is not contradictory to client interest) Firm Policies
- 18. 5 Carry Out Regular Reviews 6 7 8 Deal fairly with all clients with respect to investment actions Disclose conflict of interest Disclose compensation arrangements Firm Policies
- 19. 9 Vote Proxies 10 11 12 Maintain Confidentiality Seek Best Execution Place Client’s Interest First Firm Policies
- 20. STANDARD III (A) Application of the Standard
- 21. Example-1: Identifying the Client First Country Bank serves as trustee for the Miller Company’s Pension plan. Miller is the target of a hostile takeover attempt by Newton Inc. In attempting to ward off Newton, Miller manager pursued Julian Wiley, an investment manager at first Country Bank, to purchase Miller common stock in the open market for the employee pension plan. Miller co thought it would help them to survive. Wiley Believes the stocks are overvalued & would not ordinarily buy them, but he purchases the stocks to support Miller’s manager & to maintain Miller’s good favor towards the bank. The heavy stock purchase cause Miller’s market price to rise & avoids the takeover.
- 22. Example-1: Comments • Wiley completely violated Standard 3 (A) • He was working for the interest of pension plan, or the employees, he misused the money to save the company in fake way. • He flattered or benefited the existing management for his firms interest avoiding the company shareholders • He need to judge the takeover offer from unbiased point of view, may b it would maximize existing shareholders value • He sacrificed the benefits of ultimate beneficiaries- Employees & shareholders to save self interest
- 23. Example-2: Brokerage Agreement Emilie Rome is a trust officer for Paget Trust Company. Rome’s Supervisor is responsible for reviewing Rome’s trust account transactions & her monthly reports of personal stock transaction. Rome has been using Nathan Gray, a broker, almost exclusively for trust account brokerage transactions. When Gray makes a market in stocks, he has been giving Rome a lower price for personal purchases and a higher price for Sales than he gives to Rome’s trust account & other investors.
- 24. Example-2: Comments • Rome is placing her own interest above the client interest • She is using Gray to trade her personal transactions in favorable terms than trust company. • She is violating duty of loyalty to the client
- 25. Example-3: Excessive Trading Vida manages the portfolio of a number of high net worth individuals. A major part of her investment management fee is based on trading commission. Vida engages in extensive trading for each of her client to ensure that she attains the minimum level of commission set by her firm. Although the securities purchased & sold for the clients are appropriate, and fall within acceptable asset class for the client, the amount of trading for each account exceeds what is necessary to achieve client’s objective.
- 26. Example-3: Comments • Vida violating standards by using her client’s assets to benefit herself & her firm.
- 27. Standard III(B) Fair Dealing
- 28. Standard III(B) Fair Dealing Members and Candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities. Highlights: • Investment Recommendations • Investment Action
- 29. Standard III(B) Fair Dealing • Standard III(B) requires members and candidates to treat all clients fairly when disseminating investment recommendations or making material changes to prior investment recommendations. • The term “fairly” implies that the member or candidate must take care not to discriminate against any clients when disseminating investment recommendations or taking investment action • Standard III(B) does not state “equally” because all investment opportunities are not suitable for all clients.
- 30. Standard III(B) Fair Dealing Standard III(B) covers conduct in two broadly defined categories Investment recommendations investment action
- 31. Investment Recommendations An investment recommendation is any opinion expressed by a member or candidate in regard to purchasing, selling, or holding a given security or other investment.
- 32. Investment Recommendations • primary function is the preparation of investment recommendations to be disseminated either to the public or within a firm for the use of others in making investment decisions. • opinion may be disseminated to customers or clients through i. an initial detailed research report ii. a brief update report iii. a list of recommended securities iv. oral communication
- 33. • Standard III(B) addresses the manner in which investment recommendations or changes in prior recommendations are disseminated to clients. Each member or candidate is obligated to ensure that information is disseminated in such a manner that all clients have a fair opportunity to act on every recommendation • The duty to clients imposed by Standard III(B) may be more critical when members or candidates change their recommendations than when they make initial recommendations Investment Recommendations
- 34. Investment Recommendations • Clients who do not know that the member or candidate has changed a recommendation and who, therefore, place orders contrary to a current recommendation should be advised of the changed recommendation before the order is accepted.
- 35. Investment Action Taking investment action (portfolio management) on the basis of recommendations prepared internally or received from external sources which can also affect market value
- 36. Investment Action • Standard III(B) requires that members or candidates treat all clients fairly in light of their investment objectives and circumstances. • Candidate must exercise care to treat all clients fairly. • The disclosure should be clear and complete so that the client can make an informed investment decision • members and candidates must put client interests ahead of their own.
- 37. Investment Action • members and candidates should not take advantage of their position in the industry to the detriment of clients. • For instance, in the context of IPOs, members and candidates must make bona fide (without any intention to deceive) public distributions of “hot issue” securities (defined as securities of a public offering that are trading at a premium in the secondary market whenever such trading commences because of the great demand for the securities).
- 38. Recommended Procedures for Compliance Develop Firm Policies Members and candidates should consider the following points when establishing fair-dealing compliance procedures: • Limit the number of people involved: Members and candidates should make reasonable efforts to limit the number of people who are privy to the fact that a recommendation is going to be disseminated. • Shorten the time frame between decision and dissemination: In an organization where both a research committee and an investment policy committee must approve a recommendation, the meetings should be held on the same day if possible.
- 39. Recommended Procedures for Compliance Develop Firm Policies Publish guidelines for pre-dissemination behavior: Prohibit personnel who have prior knowledge of an investment recommendation from discussing or taking any action on the pending recommendation. Simultaneous dissemination: I. Informing clients approximately at the same time to avoid unfair advantage relative to other clients. II. The trading restrictions should stay in effect until the recommendation is widely distributed to all relevant clients Maintain a list of clients and their holdings: list of all clients and the securities or other investments each client holds should be maintained.
- 40. Recommended Procedures for Compliance Develop Firm Policies Develop and document trade allocation procedures: Procedures to consider are as follows: • Requiring orders and modifications or cancellations of orders to be documented and time stamped • Processing and executing orders on a first-in, first-out basis
- 41. Disclose Trade Allocation Procedures Disclose to clients how they select accounts to participate in an order and how they determine the amount of securities each account will buy or sell. Establish Systematic Account Review Member and candidate supervisors should review each account on a regular basis to ensure that no client or customer is being given preferential treatment and that the investment actions taken for each account are suitable for each account’s objectives. Disclose Levels of Service Disclosing to all clients whether the organization offers different levels of service to clients for the same fee or different fees.
- 42. Application of the Standard Example 1 (Selective Disclosure): Bradley Ames, a well-known and respected analyst, follows the computer industry. In the course of his research, he finds that a small, relatively unknown company whose shares are traded over the counter has just signed significant contracts with some of the companies he follows. After a considerable amount of investigation, Ames decides to write a research report on the small company and recommend purchase of its shares. While the report is being reviewed by the company for factual accuracy, Ames schedules a luncheon with several of his best clients to discuss the company. At the luncheon, he mentions the purchase recommendation scheduled to be sent early the following week to all the firm’s clients.
- 43. Comment: Ames has violated Standard III(B) by disseminating the purchase recommendation to the clients with whom he has lunch a week before the recommendation is sent to all clients.
- 44. Example 2 (Additional Services for Select Clients): Jenpin Weng uses e-mail to issue a new recommendation to all his clients. He then calls his three largest institutional clients to discuss the recommendation in detail. Comment: Weng has not violated Standard III(B) because He widely disseminated the recommendation and provided the information to all his clients prior to discussing it with a select few. Weng’s largest clients received additional personal service because they presumably pay higher fees or because they have a large amount of assets under Weng’s management.
- 45. Example 3 (Selective Disclosure): Saunders Industrial Waste Management (SIWM) publicly indicates to analysts that it is comfortable with the somewhat disappointing (EPS) earnings-per-share projection of US$1.16 for the quarter. Bernard Roberts, an analyst at Coffey Investments, is confident that SIWM management has understated the forecasted earnings so that the real announcement will cause an “upside surprise” and boost the price of SIWM stock. The “whisper number” (rumored) estimate based on extensive research and discussed among knowledgeable analysts is higher than US$1.16. Roberts repeats the US$1.16 figure in his research report to all Coffey clients but informally tells his large clients that he expects the earnings per share to be higher, making SIWM a good buy.
- 46. Comment: By not sharing his opinion regarding the potential for a significant upside earnings surprise with all clients, Roberts is not treating all clients fairly and has violated Standard III(B).
- 48. Suitability Standard III(C) requires that members and candidates who are in an investment advisory relationship with clients consider carefully the needs, circumstances, and objectives of the clients when determining the appropriateness and suitability of a given investment or course of investment action.
- 49. In judging the suitability of a potential investment, the member or candidate should review many aspects of the client’s : I. Knowledge II. experience related to investing III. financial situation IV. risk and return objectives
- 50. Candidates must make only investment recommendations or investment actions that are consistent with the stated objectives
- 51. Highlights: • Developing an Investment Policy • Understanding the Client’s Risk Profile • Updating an Investment Policy • The Need for Diversification • Addressing Unsolicited Trading Requests • Managing to an Index or Mandate
- 52. Developing an Investment Policy When an advisory relationship exists, members and candidates must gather client information on: • financial circumstances, • personal data (such as age and occupation) that are relevant to investment decisions • attitudes toward risk • objectives in investing • time horizon • This information should be incorporated into a written investment policy statement (IPS)
- 53. After formulating long-term Capital market expectations, members and candidates can assist in developing an appropriate strategic asset allocation and investment program for the client. Developing an Investment Policy
- 54. Understanding the Client’s Risk Profile • One of the most important factors to be considered is measuring that client’s tolerance for risk. • The investment professional must consider the possibilities of rapidly changing investment environments and their likely impact on a client’s holdings • The risk of many investment strategies can and should be analyzed in advance
- 55. Updating an Investment Policy • Updating the IPS should be repeated at least annually • For an individual client, important changes might include liquidity needs, risk tolerance, amount of wealth beyond that represented in the portfolio, current income needs. • Suitability review can be done most effectively when the client fully discloses his or her complete financial portfolio
- 56. The Need for Diversification • The investment profession has long recognized that combining several different investments is likely to provide a more acceptable level of risk exposure than having all assets in a single investment. • An investment with high relative risk on its own may be a suitable investment in the context of the entire portfolio or when the client’s stated objectives contemplate speculative or risky investments. • Members and candidates can be responsible for assessing the suitability of an investment only on the basis of the information and criteria actually provided by the client.
- 57. Managing to an Index or Mandate Members and candidates who manage pooled assets to a specific mandate are not responsible for determining the suitability of the fund as an investment for investors who may be purchasing shares in the fund. The responsibility for determining the suitability of an investment for clients can be conferred only on members and candidates who have an advisory relationship with clients.
- 58. Recommended Procedures for Compliance A) Investment Policy Statement To fulfill the basic provisions of Standard III(C), a member or candidate should put the needs and circumstances of each client and the client’s investment objectives into a written investment policy statement. In formulating an investment policy for the client, the member or candidate should take the following into consideration: • client identification—(1) type and nature of client, (2) the existence of separate beneficiaries, and (3) approximate portion of total client assets that the member or candidate is managing; • investor objectives—(1) return objectives (income, growth in principal, maintenance of purchasing power) and (2) risk tolerance (suitability, stability of values);
- 59. Recommended Procedures for Compliance A) Investment Policy Statement • investor constraints—(1) liquidity needs, (2) expected cash flows (patterns of additions and/or withdrawals), (3) investable funds (assets and liabilities or other commitments), (4) time horizon, (5) tax considerations, (6) regulatory and legal circumstances, (7) investor preferences, prohibitions, circumstances, and unique needs, and (8) proxy voting responsibilities and guidance; • performance measurement benchmarks.
- 60. B) Investment Policy Statement The investor’s objectives and constraints should be maintained and reviewed periodically to reflect any changes in the client’s circumstances. C) Suitability Test Policies The test procedures should require the investment professional to look beyond the potential return of the investment and include the following: ₪ an analysis of the impact on the portfolio’s diversification, ₪ the fit of the investment with the required investment strategy.
- 61. Application of the Standard III(C): Suitability Example 1 (Investment Suitability—Risk Profile): Caleb Smith, an investment adviser, has two clients: Larry Robertson, 60 years old, and Gabriel Lanai, 40 years old. Both clients earn roughly the same salary, but Robertson has a much higher risk tolerance because he has a large asset base. Robertson is willing to invest part of his assets very aggressively; Lanai wants only to achieve a steady rate of return with low volatility to pay for his children’s education. Smith (investment adviser)recommends investing 20% of both portfolios in zero-yield, small- cap, high-technology equity issues. Comment: In Robertson’s case, the investment may be appropriate because of his financial circumstances and aggressive investment position, but this investment is not suitable for Lanai. Smith is violating Standard III(C) by applying Robertson’s investment strategy to Lanai because the two clients’ financial circumstances and objectives differ.
- 62. Example 2 (Following an Investment Mandate): Louis Perkowski manages a high-income mutual fund. He purchases zero- dividend stock in a financial services company because he believes the stock is undervalued and is in a potential growth industry, which makes it an attractive investment. Comment: A zero-dividend stock does not seem to fit the mandate of the fund that Perkowski is managing. Unless Perkowski’s investment fits within the mandate or is within the realm of allowable investments the fund has made clear in its disclosures, Perkowski has violated Standard III(C).
- 64. When communicating investment performance information, Members and Candidates must make reasonable efforts to ensure that it is fair, accurate, and complete.
- 65. Guidance Standard III(D) requires members and candidates to provide credible performance information to clients and prospective clients and to avoid misstating performance or misleading clients and prospective clients about the investment performance of members or candidates or their firms. This standard encourages full disclosure of investment performance data to clients and prospective clients.
- 66. Guidance Standard III(D) covers any practice that would lead to misrepresentation of a member’s or candidate’s performance record, whether the practice involves performance presentation or performance measurement. . This standard prohibits misrepresentations of past performance or reasonably expected performance A member or candidate must give a fair and complete presentation of performance information whenever communicating data with respect to the performance history of individual accounts, composites or groups of accounts, or composites of an analyst’s or firm’s performance results.
- 67. Guidance Furthermore, members and candidates should not state or imply that clients will obtain or benefit from a rate of return that was generated in the past. The requirements of this standard are not limited to members and candidates managing separate accounts. Whenever a member or candidate provides performance information for which the manager is claiming responsibility, such as for pooled funds, the history must be accurate. Research analysts promoting the success or accuracy of their recommendations must ensure that their claims are fair, accurate, and complete.
- 69. Apply the GIPS Standards The Global Investment Performance Standard For members and candidates who are showing the performance history of the assets they manage, compliance with the GIPS standards is the best method to meet their obligations under Standard III(D).
- 70. Compliance without Applying GIPS Standards Members and candidates can also meet their obligations under Standard III(D) by ♠ considering the knowledge and sophistication of the audience to whom a performance presentation is addressed ♠ presenting the performance of the weighted composite of similar portfolios rather than using a single representative account ♠ including terminated accounts as part of performance history with a clear indication of when the accounts were terminated
- 71. Compliance without Applying GIPS Standards Members and candidates can also meet their obligations under Standard III(D) by includes disclosures that fully explain the performance results being reported (for example, stating, when appropriate, that results are simulated when model results are used, clearly indicating when the performance record is that of a prior entity, or disclosing whether the performance is gross of fees, net of fees, or after tax), and maintain the data and records used to calculate the performance being presented.
- 72. Application of the Standard Example 1 (Performance Calculation and Length of Time): Kyle Taylor of Taylor Trust Company, noting the performance of Taylor’s common trust fund for the past two years, states in a brochure sent to his potential clients, “You can expect steady 25% annual compound growth of the value of your investments over the year.” Taylor Trust’s common trust fund did increase at the rate of 25% per year for the past year, which mirrored the increase of the entire market. The fund has never averaged that growth for more than one year, however, the average rate of growth of all of its trust accounts for five years is 5% per year.
- 73. Comment: Taylor’s brochure is in violation of Standard III(D). Taylor should have disclosed that the 25% growth occurred only in one year. Additionally, Taylor did not include client accounts other than those in the firm’s common trust fund. A general claim of firm performance should take into account the performance of all categories of accounts. Finally, by stating that clients can expect a steady 25% annual compound growth rate, Taylor is also violating Standard I(C)– Misrepresentation, which prohibits assurances or guarantees regarding an investment.
- 74. Application of the Standard Example 2 (Performance Calculation and Asset Weighting): Anna Judd, a senior partner of Alexander Capital Management, circulates a performance report for the capital appreciation accounts for the years 1988 through 2004. The firm claims compliance with the GIPS standards. Returns are not calculated in accordance with the requirements of the GIPS standards, however, because the composites are not asset weighted.
- 75. Comment: Judd is in violation of Standard III(D). When claiming compliance with the GIPS standards, firms must meet all of the requirements, make mandatory disclosures, and meet any other requirements that apply to that firm’s specific situation. Judd’s violation is not from any misuse of the data but from a false claim of GIPS compliance.
- 76. Application of the Standard Example 3 (Performance Calculation Methodology Disclosure): While developing a new reporting package for existing clients, Alisha Singh, a performance analyst, discovers that her company’s new system automatically calculates both time-weighted and money-weighted returns. She asks the head of client services and retention which value would be preferred given that the firm has various investment strategies that include bonds, equities, securities without leverage, and alternatives. Singh is told not to label the return value so that the firm may show whichever value is greatest for the period.
- 77. Comment: Following these instructions would lead to Singh violating Standard III(D). In reporting inconsistent return values, Singh would not be providing complete information to the firm’s clients. Full information is provided when clients have sufficient information to judge the performance generated by the firm.
- 78. Standard III(E) Preservation of Confidentiality
- 79. Members and Candidates must keep information about current, former, and prospective clients confidential unless: ۞The information concerns illegal activities on the part of the client; ۞disclosure is required by law; or ۞The client or prospective client permits disclosure of the information.
- 80. Guidance Highlights: ♠ Status of Client ♠ Compliance with Laws ♠ Electronic Information and Security ♠ Professional Conduct Investigations by CFA Institute
- 81. Standard III(E) requires that members and candidates preserve the confidentiality of information communicated to them by their clients, prospective clients, and former clients. This standard is applicable when ۞ the member or candidate receives information because of his or her special ability to conduct a portion of the client’s business or personal affairs and ۞the member or candidate receives information that arises from or is relevant to that portion of the client’s business that is the subject of the special or confidential relationship. If disclosure of the information is required by law or the information concerns illegal activities by the client, however, the member or candidate may have an obligation to report the activities to the appropriate authorities.
- 82. Status of Client This standard protects the confidentiality of client information even if the person or entity is no longer a client of the member or candidate. Therefore, members and candidates must continue to maintain the confidentiality of client records even after the client relationship has ended Compliance with Laws As a general matter, members and candidates must comply with applicable law. If applicable law requires disclosure of client information in certain circumstances, members and candidates must comply with the law. Similarly, if applicable law requires members and candidates to maintain confidentiality, even if the information concerns illegal activities on the part of the client, members and candidates should not disclose such information
- 83. Electronic Information and Security Standard III(E) does not require members or candidates to become experts in information security technology, but they should have a thorough understanding of the policies of their employer. The size and operations of the firm will lead to differing policies for ensuring the security of confidential information maintained within the firm. Members and candidates should encourage their firm to conduct regular periodic training on confidentiality procedures for all firm personnel Professional Conduct Investigations by CFA Institute The requirements of Standard III(E) are not intended to prevent members and candidates from cooperating with an investigation by the CFA Institute Professional Conduct Program (PCP). Members and candidates are encouraged to cooperate with investigations into the conduct of others. Any information turned over to the PCP is kept in the strictest confidence.
- 84. Recommended Procedures for Compliance The simplest, most conservative, and most effective way to comply with Standard III(E) is to avoid disclosing any information received from a client except to authorized fellow employees who are also working for the client. Members and candidates need to understand and follow their firm’s electronic information communication and storage procedures.
- 85. Application of the Standard Example 1 (Disclosing Confidential Information): Lynn Moody is an investment officer at the Lester Trust Company. She has an advisory customer who has talked to her about giving approximately US$50,000 to charity to reduce her income taxes. Moody is also treasurer of the Home for Indigent Widows (HIW), which is planning its annual giving campaign. HIW hopes to expand its list of prospects, particularly those capable of substantial gifts. Moody recommends that HIW’s vice president for corporate gifts call on her customer and ask for a donation in the US$50,000 range.
- 86. Comment: Even though the attempt to help the Home for Indigent Widows was well intended, Moody violated Standard III(E) by revealing confidential information about her client.
- 87. Application of the Standard Example 2 (Disclosing Possible Illegal Activity): Government officials approach Casey Samuel, the portfolio manager for Garcia Company’s pension plan, to examine pension fund records. They tell her that Garcia’s corporate tax returns are being audited and the pension fund is being reviewed. Two days earlier, Samuel had learned in a regular investment review with Garcia officers that potentially excessive and improper charges were being made to the pension plan by Garcia. Samuel consults her employer’s general counsel and is advised that Garcia has probably violated tax and fiduciary regulations and laws.
- 88. Comment: Samuel should inform her supervisor of these activities, and her employer should take steps, with Garcia, to remedy the violations. If that approach is not successful, Samuel and her employer should seek advice of legal counsel to determine the appropriate steps to be taken. Samuel may well have a duty to disclose the evidence she has of the continuing legal violations and to resign as asset manager for Garcia.
- 89. THANK YOU!