Data Droid manages several investment accounts and directs most of the client transactions through Lore's brokerage firm. Lore provides him with excellent, reliable research, though his commissions are higher than industry standards. The research is used to manage all the client accounts. Data has just been approached by the Troy brokerage firm, which is a newcomer in the business. While this firm does not provide any research, it charges commissions that are significantly lower than those charged by Lore. If Data decides to stay with Lore's brokerage firm
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A. B. C. D.C
Standard IV (B.1) - Fiduciary Duties
Based on the information provided, let's analyze each answer choice and determine which one is the most appropriate.
A. has not violated the code since he has a long-standing relationship with Lore.
This answer choice suggests that Data has not violated the code of ethics simply because he has a long-standing relationship with Lore. However, the question does not mention anything about the length of the relationship being a determining factor. It's important to note that the CFA Institute's Code of Ethics and Standards of Professional Conduct emphasizes the importance of acting in the best interest of clients and maintaining independence and objectivity.
B. he has violated the code of ethics, which requires him to keep the expenses to a minimum.
This answer choice states that Data has violated the code of ethics by not keeping expenses to a minimum. While it's true that the code of ethics encourages members to consider costs, it does not explicitly require them to keep expenses to an absolute minimum. The code emphasizes that members should place the interests of clients first and act with integrity and professionalism.
C. has not violated the code if Lore's research justifies the additional expenses.
This answer choice suggests that Data has not violated the code of ethics if Lore's research justifies the higher commissions charged by the brokerage firm. However, the question does not provide any information about the quality or value of Lore's research. The code of ethics requires members to act diligently, exercise reasonable care, and make reasonable and independent judgments. Simply stating that research justifies higher expenses is not sufficient to determine if the code has been violated.
D. has violated the code by violating the Prudent Man Rule.
The Prudent Man Rule is a legal concept related to fiduciary duty, which typically applies to trustees managing trust assets. It requires them to act with prudence, care, and diligence when managing investments. While this concept is relevant in certain contexts, it is not directly applicable to Data's situation as described in the question.
In conclusion, based on the information provided, none of the answer choices appear to be a fully accurate representation of the situation. However, the closest option to the principles outlined in the CFA Institute's Code of Ethics and Standards of Professional Conduct would be B: Data has violated the code of ethics, which requires him to keep expenses to a minimum. This choice aligns with the importance of acting in the best interest of clients and considering costs, although it should be noted that the code does not explicitly require expenses to be minimized to the absolute minimum.