Compensating Portfolio Managers for Capital Appreciation | Test Prep

Portfolio Manager Compensation Based on Capital Appreciation

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Question

Jurgens is a portfolio manager with an investment firm based in New York. One of her firm's clients has told Jurgens that he will compensate her beyond that provided by her firm on the basis of the capital appreciation of his portfolio each year. Jurgens should:

Answers

A. Turn down the additional compensations because it will result in conflicts with the interest of other client's accounts.

B. Turn down the additional compensation because it will create undue pressure on her to achieve strong short-term performance.

C. Obtain permission from her employer prior to accepting the compensation arrangement.

D. Receive permission from AIMR for the compensation arrangement. C

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Explanations

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A. B. C. D.

Explanation

This question pertains to Standard III (D), Disclosure of Additional Compensation Arrangements. If Jurgens were to be compensated, based on the account's performance, beyond that provided by her firm, such a practice is not a violation of the Standards, so long as Jurgens discloses the arrangement inwriting to her employer and obtains permission from the employer before entering the agreement. Members are not required to receive permission from AIMR for such arrangements.

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