According to CFA Institute Standards of Professional Conduct, which of the following statements is most accurate with regard to the arrangement proposed by Basch to Cooken?

A potential client contacted an employee and wanted detailed performance records of client accounts so he can decide whether to invest with the firm."

Basch goes on to say that she is responsible for developing a presentation on the differences between the Prudent Investor and the Prudent Man rules for managing trust portfolios. Basch explains to Cooken that the Prudent Investor rule requires a trustee to exercise five fiduciary standards in managing the assets of a trust account, including care, skill, caution, loyalty, and impartiality. She states that although there are many differences between the Prudent Man and the newer Prudent Investor rule, one element of continuity is the duty of the trustee to delegate investment authority in the event that the trustee lacks sufficient investment knowledge.

Toward the end of the lunch meeting, Basch suggests that in exchange for research published by Cooken and Khasko, Basch can have portfolio managers at her firm send clients that are too small for their firm to Khasko. Since Khasko specializes in clients with smaller portfolios, the arrangement sounds like a good idea to Cooken. Cooken tells Basch that she will think the arrangement over and get back with her next week with a decision.

According to CFA Institute Standards of Professional Conduct, which of the following statements is most accurate with regard to the arrangement proposed by Basch to Cooken?
A . Under no circumstances may Cooken agree to the arrangement as proposed by Basch.
B . Cooken may agree to the arrangement only if it is disclosed to her employer, clients, and prospects.
C . Cooken may agree to the arrangement but need only make appropriate disclosure to prospective clients.

View Answer

Answer: B

Explanation:

According to Standard VI(C) Referral Fees, members and candidates must disclose to their employer, clients, and prospective clients any compensarion, consideration, or benefit obtained from or given to other entities in exchange for referrals related to products or services. There is no prohibition on such arrangements as long as they are disclosed so clients and prospects can assess the full cost of services. (Study Session 1, LOS 2.a)