chapter 10.3 guidance for standards 1: Profssionalism

Question 1

What is a “benefit”?

Answer 1

Benefits may include gifts, tickets, invitations to lavish functions, or even allocations to oversubscribed IPOs for a personal account. Benefits may be provided indirectly. For example, a company may invite analysts to speak at sponsored events, or a broker may donate to a portfolio manager’s preferred charity in order to secure additional business.

Question 2

Are all gifts and benefits from outside parties prohibited?

Answer 2

While it is permissible to accept modest gifts and entertainment, this should be consistent with an employer’s policies.

Question 3

Are gifts and benefits from clients prohibited?

Answer 3

Gifts from clients could be acceptable due to the nature of the relationship

Question 4

Investors feel more comfortable holding the stocks of companies that receive ongoing coverage from many analysts. Companies that receive little or no regular coverage may choose to hire independent analysts to produce reports. Such arrangements create an obvious conflict of interest because

Answer 4

because the analyst is being paid by the company that is being evaluated.

Question 5

Issuer-paid research is permissible as long as

Answer 5

measures are taken to protect the analyst’s independence and proper disclosures are made

Specifically, analysts should not accept an assignment until they have negotiated a flat fee that is not linked to their conclusions or recommendations

Question 6

to help members and candidates comply with the standard of independence and objectivity, firms should take the following measures:

Answer 6

Offer compensation packages that do not create incentives for biased reporting

Restrict the use of special arrangements in which corporate issuers cover analysts’ travel costs

Provide only factual information about corporate clients if they are unwilling to allow negative opinions

Establish policies about accepting gifts from third parties and clients

Restrict employee participation in IPOs and private placements

Adopt a formal independence policy

Appoint a senior officer to enforce compliance with the firm’s code of ethics

Question 7

Recommended Procedures for Compliance (Misrepresentation)

Answer 7

Members should:

Understand their own and the firm’s limitations and qualifications. It is best if the firm puts this in a written document.

Prepare a written summary of their qualifications and experience.

Verify distributed third-party information and regularly monitor published webpages.

Avoid plagiarism by maintaining copies of materials used to create research reports, attributing direct quotations to their sources, and giving credit to sources used for summary reports.