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Basic Question 3 of 6
Orlando, a CFA charterholder, is a research analyst with a brokerage firm. He decided to change his recommendation on the common stock of Idibi, Inc. from a "buy" to a "sell." He faxed this change in investment advice to all his current customers. The next day, a new customer called with a "buy" order for 500 shares of Idibi. In this circumstance, Orlando ______.
II. should advise the customer of the change in recommendation before accepting the order
III. should delay executing the order until five days have elapsed after the communication of the change in recommendation
IV. may accept the order when the customer specifies in writing that he was notified of the change in the recommendation
I. may accept the order because he has complied with the standard on fair dealing with customers
II. should advise the customer of the change in recommendation before accepting the order
III. should delay executing the order until five days have elapsed after the communication of the change in recommendation
IV. may accept the order when the customer specifies in writing that he was notified of the change in the recommendation
User Contributed Comments 20
| User | Comment |
|---|---|
| mrevil | note that if there is only one choice only II would be correct. |
| kaliokale | 1 sounds OK to me though |
| danlan | He still should advise first. I is wrong |
| lockedin | Why does the customer have to put it in writing? |
| 0is4eva | In their material CFA Institute writes "...cliens who don't know that the M&C 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." Then, under "Procedures for compliance" the CFA Institute's material add: "...M&Cs should develop ... procedures ... requiring orders and modifications an cancellations of orders to be in writing and time stamped ..." ( III(B) p. 53) It is not crystal clear, you have to add two and two together. |
| Slothrop | Still, he can be required to put in writing his order, but why does he need to put in writing that he was notified of the change in the recommendation? Nothing in the official CFA materials say this is necessary. |
| accounting | the key words are "current" and "new" clients. i think. |
| bobert | If it is a new client, that means no existing relationship right? Being so, there is no discretionary account setup without paperwork. So the new client would need to sign something, but this is not discretionary, it is a simple trade, which if it is a new client is unsolicited. II makes perfect sense, as you are protecting the investor. If you follow through with II and the client still wants to buy the stock, who are you to tell them no? Is it only required so that you can cover yourself in case they plan on suing you? |
| TammTamm | Why would the analyst need to receive something in writing. Did I miss something. Anywho, I know II is correct. |
| TammTamm | Thanks bobert, it makes sense now. I skipped the new customer part altogehter when I orginally read this. |
| alyl21 | The principle at hand is to make reasonable attempts to allow clients to know the piece of material information |
| dblueroom | I is wrong, because you have a fiduciary duty to inform the client the change in recommendation. like previous person noted, this is a piece of material information. any action that contradicts the recommendation should be documented. |
| apiccion | I is wrong because the client may not have received the recommendation for a number a reasons (wasn't in the office, technical difficulties with the fax machine) III is wrong because the trustee has final say in how how their own account is managed. IV kinda got me stumped. |
| mazen1967 | orlando is a research analyst he dosent execute orders |
| majesty | thumbs up, mazen1967 |
| quanttrader | IV? that is ridiculous -- as long as you notify the client of the update, and have notified all clients then client should be able to execute the order w/ verbal consent |
| gill15 | No way I wouldve got that one. That is some tricky stuff. Hope this shows up on the exam. Ill nail it. |
| Yrazzaq88 | Interesting. I guess the key thing to take is from this is that it's a "new" customer and therefore is not aware of the recommendation. I chose A), but now I can see where it is coming from. |
| mahendra | IV is also correct because Customer knew about the change in the recommendation |
| MapherRdz | I think that is also important the fact about "new client", in the notes and the book the CFA emphasize that analysts has a duty to prospect clients so in this case Orlando should advise the customer and if he/she wants although buy the stock he/she must writes that already knows abut the change in the recomendation, so Orlando would be fullfil his duty. |
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Learning Outcome Statements
demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity
recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct
identify conduct that conforms to the Code and Standards and conduct that violates the Code and Standards
CFA® 2025 Level I Curriculum, Volume 6, Module 3.