Question

Harry Brown is a portfolio manager at RS Investments. Brown is also on board of an organization working for the welfare of disabled children. The organization is currently in need of funds to manage its working capital so Brown proposes to the school an arrangement, where if the guardians of the children recommended clients to RS Investment, Brown will pay a part of his service fees from the organization. The organization accepts the proposal and when brown receives his first call from a recommended client, he does not inform the client about the arrangement? Has Brown violated the CFA Institute Standards of Professional Conduct? J

Answer 1

Yes, Harry Brown has violated the CFA Institute Standards of Professional Conduct by not disclosing the arrangement to the recommended client. Conflicts of interest can undermine the integrity of the investment process and erode trust between portfolio managers and clients. It is essential for portfolio managers to uphold the highest ethical standards and avoid any actions that may compromise their independence and objectivity.

Step-by-step explanation:

Yes, Harry Brown has violated the CFA Institute Standards of Professional Conduct by not disclosing the arrangement to the recommended client. According to the CFA Institute Standards, members have a duty to disclose any potential conflicts of interest that could compromise their independence and objectivity. By not informing the client about the arrangement, Brown has failed to meet this duty.

Conflicts of interest can undermine the integrity of the investment process and erode trust between portfolio managers and clients. In this case, Brown's failure to disclose the arrangement creates a potential conflict where he may prioritize recommending investments to secure the service fees for the organization, rather than acting solely in the best interest of the client.

To maintain professional integrity, it is essential for portfolio managers to uphold the highest ethical standards and avoid any actions that may compromise their independence and objectivity.