PART B - SHORT CASE STUDIES - 18 MARKS

1.Monroe is a chartered CFA member. He was recently hired by Delorian Investments Inc., a company that manages individual portfolios, pension funds and mutual funds to manage personal portfolios. He is paid a base salary of $75,000, plus a percent (0.75%) of assets that he administers. Monroe is interested in building up his business quickly. He writes a letter to all his clients stating: "... should you refer any private client to me whose investable assets are greater than $500,000, I will compensate you by 0.125% on the fees that you pay to me for a period of one year." Monroe believes that this is a good way of building up his business and that his company will be pleased with his efforts. He does not discuss his plan with his employer, Delorian, prior to sending out the letter. (Total 6 marks)

a)Identify the Standard and the subsection of the CFA Standards that is being contravened by Monroe. (1 mark)

b)Explain why this type of activity is wrong in this case. (3 marks)

c)Explain what Management's responsibility is in this situation and indicate the CFA Standards that management is contravening. (2 marks)

2.Armel Jones CFA is a security research analyst that specializes in the mining sector. He has read all the information that has been made public on a company called Deep Well Mining. Deep Well Mining has the rights to a property located on Baffin Island. From certain geological reports Armel estimates that the amount of platinum that can be mined at that site is about 500,000 ounces. In his report, he states "Due to the fact that the company Deep Well Mining has 500,000 ounces of platinum waiting to be mined, I recommend a buy."(total 6 marks)

a)What Standard of Ethical Behaviour is being contravened and why? (2 marks)

b)Why is it wrong to issue a statement such as the one that Armel has issued? (2 marks)

c)Explain how you would handle this situation if you were the analyst? State exactly what you would say. (2 marks)

3.Jessie James is an investment manager who manages a number of portfolios for high net worth clients. A large part of his investment management fee is based on commissions earned from trading.Jessie's firm requires him to attain a minimum commission level. In order to meet that performance criterion Jessie engages in excessive trading for his clients. Although all the securities purchased for the clients are appropriate and within the acceptable asset class limits for each portfolio the amount of trading in each account exceeds what is necessary to reach the performance goal.(6 marks)

a)What Standard of ethical behaviour has Jessie violated? (2 marks)

b)Why is this behaviour unethical? (2 marks)

c)What is this practice commonly called? (1 mark)

d)What would you say to your boss if he or she suggested that you do like this? (1 mark)