Erin Mutini, CFA, a South African resident, is an employee of Oakwood Asset Management (OAM), an asset management company based in South Africa. OAM manages and sells its branded mutual funds and unit trusts through agents across Africa. Mutini was recently sent to Uganda to oversee OAM’s new agency agreement with Rayne Brokers, a licensed Ugandan stock brokerage company with a strong retail customer base.
Part of Mutini’s oversight role is to establish policies and procedures to ensure that the Ugandan sales force represents OAM in a professional manner. As a condition of its agency agreement, OAM requires all of Rayne’s sales agents to adhere to South African financial regulations, generally considered to be stricter than those in Uganda. OAM also requires all of its sales agents to abide by the CFA Institute Code of Ethics and Standards of Professional Conduct (Code and Standards). OAM’s lawyer has indicated that South African laws are stricter than the Code and Standards.
To inform Rayne sales agents of their responsibilities under the OAM agency agreement, Mutini holds a meeting with the agents to discuss the financial regulations of South Africa and the Code and Standards. To conclude the meeting, Mutini describes OAM’s annual competition among its sales agents, in which the winner is determined by the value of products sold (assets under management), fees generated, and the number of new clients brought in. The competition prize is an all-expense-paid two-week holiday for two to Mauritius. Mutini advises the staff that they should concentrate their sales efforts on OAM’s front-end load funds because they earn the highest fees. She adds that staff should not disclose this competition to clients.
Mutini next meets with Rayne supervisors to specifically discuss their roles in upholding the Code and Standards. She informs them that they are responsible for the prevention of any violations of laws, rules, regulations, or the Code and Standards by the staff directly under their supervision. To make their job easier, instead of focusing equally on all of the requirements, Mutini suggests that the supervisors should concentrate on the following:
communicating compliance policies and procedures to all covered staff,
undertaking periodic reviews to ensure procedures are followed, and
enforcing investment-related policies.
Later that day, Mutini scrutinizes Rayne’s marketing material with Rayne’s most successful sales agent, Tom Okello, another CFA charterholder. They are preparing for a sales meeting to introduce OAM products to a potential client. Mutini notices that Rayne’s responsibility to uphold the Code and Standards is not mentioned anywhere in the marketing material. Neither does the material mention that some of Rayne’s employees are CFA charterholders. Mutini also notices that Okello does not use the CFA designation on his business card. When Mutini asks him why, he responds, “If I use it, people will think I have a duty to Rayne’s clients. I do not have a duty to clients because stockbrokers in Uganda are not required to uphold a fiduciary duty. I do not want to mislead our clients by using the CFA designation.”
During the sales meeting with the potential client, Okello makes the following statements:
Statement 1
Before making an investment for any of our mutual funds or unit trusts, Rayne follows an extensive due diligence process and research analysis. We will only invest in the company if that investment meets the investment criteria that I have outlined to you.
Statement 2
Every six months, you will be mailed an itemized investment statement with cash flows so that you can see if your portfolio is meeting your investment objectives. In addition, you can obtain other information about our firm and investment process from our website, which is updated on a regular basis to ensure the integrity of the site as well as offer confidentiality and security to our clients. For your security, we do not post client statements on the website.
Question
Which CFA Institute Standards of Professional Conduct did Okello most likely violate in his Statement 1?
A.
Misrepresentation
B.
Suitability
C.
Diligence and Reasonable Basis
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