Exam CFA® Level 1 topic 1 question 38 discussion

Actual exam question from Test Prep's CFA® Level 1

Question #: 38
Topic #: 1

Maria Golino is a financially savvy client of Hector Gomez, a portfolio manager with a small investment firm. Maria recently directed Hector to execute all trades on her behalf with Omega Brokerage. Omega charges higher commissions than most other brokerage firms but in this case, has agreed to provide research to
Hector on behalf of Maria. Hector does not object to this and starts directing Maria's trades to Omega. Hector has

A. violated Standard IV (B.1) - Fiduciary Duties.
B. violated Standard IV (A.2) - Research Reports.
C. violated Standard IV (B.8) - Disclosure of Referral Fees.
D. not violated any standards.

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Suggested Answer: D 🗳️
The practice in which a portfolio manager directs trades to a particular brokerage in exchange for additional goods or services at the behest of the client is known as "directed brokerage." This practice is not in violation of any AIMR standards since the portfolio manager is acting on the instructions of his client and the benefits accrue to the client. Standard IV (B.1) - Fiduciary Duties - and the Topical Study "Fiduciary Duty."

by KAla7223 at Jan. 30, 2023, 5:15 a.m.

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KAla7223

1 year, 11 months ago

Hector, as a portfolio manager, has a fiduciary duty to act in the best interests of his client, Maria. By directing her trades to Omega Brokerage, a firm that charges higher commissions, Hector is not acting in Maria's best interests. Furthermore, by accepting research from Omega on Maria's behalf, Hector may be putting his own interests ahead of his client's. This could be seen as a violation of Standard IV (B.1) - Fiduciary Duties, which requires members to put their clients' interests ahead of their own.

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Exam CFA® Level 1 topic 1 question 38 discussion

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KAla7223

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