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
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A. B. C. D.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."
Based on the given information, Maria Golino has instructed her portfolio manager, Hector Gomez, to execute all trades on her behalf with Omega Brokerage. Omega Brokerage charges higher commissions compared to other brokerage firms but has agreed to provide research to Hector on behalf of Maria. Hector does not object to this arrangement and starts directing Maria's trades to Omega.
To determine whether Hector has violated any standards, we need to analyze the situation based on the CFA® Institute's Code of Ethics and Standards of Professional Conduct.
A. Violation of Standard IV (B.1) - Fiduciary Duties: This standard requires investment professionals to act in the best interest of their clients and place their clients' interests ahead of their own. By directing Maria's trades to Omega Brokerage, which charges higher commissions, Hector may not be acting in Maria's best interest unless the additional research provided by Omega Brokerage is worth the higher costs. This could be seen as a breach of his fiduciary duty, potentially making this answer choice correct.
B. Violation of Standard IV (A.2) - Research Reports: This standard deals with the use of research reports and requires that investment professionals disclose the source and any potential conflicts of interest related to the reports they use. Although Omega Brokerage has agreed to provide research to Hector on behalf of Maria, it is not explicitly mentioned whether Hector discloses this fact to Maria or other clients. Without further information, it is difficult to determine if this standard has been violated.
C. Violation of Standard IV (B.8) - Disclosure of Referral Fees: This standard requires investment professionals to disclose any compensation or benefit received as a result of recommending a particular service or product. While it is mentioned that Omega Brokerage charges higher commissions, it is not clear whether Hector is receiving any referral fees or compensation for directing Maria's trades to Omega Brokerage. Without this information, it is uncertain if this standard has been violated.
D. Not violated any standards: Based on the available information, it is possible that Hector has violated Standard IV (B.1) - Fiduciary Duties. However, without more details, it is challenging to definitively determine if any other standards have been violated.
In summary, based on the limited information provided, the most plausible answer is A. Hector may have violated Standard IV (B.1) - Fiduciary Duties by potentially not acting in Maria's best interest by directing her trades to Omega Brokerage, which charges higher commissions.