Ethics question from CFAI mock afternoon #8

[hei.so]

[question removed by admin]
Answer = B
The RFP was done on the basis of the old organizational structure, which would have included the retired finance director. Standard I (C) requires members not to misrepresent the qualifications of a firm. With a senior professional leaving the firm, the organizational structure should be updated prior to submitting a RFP for a potential client’s consideration.
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Why is it not C? I thought you can’t guarantee investment returns? Or maybe that doesn’t relate to misrepresentation but to Standard IV performance presentation?

 

[ahungerford]

hei.so wrote:
Background: McGuinn is hired as a new compliance officer. The current CO is retiring.
On his first day as the new compliance officer, McGuinn immediately reviews a draft response to a request for proposal (RFP) to be submitted the next day to a potential pension fund client. The proposal is identical to another RFP sent out three months ago and includes Forster’s organizational chart, an in-depth description of its investment process and the occasional use of third-party research providers, a guarantee of a minimum 5% investment return and return of principal through a guaranteed structured savings product, underwritten by an investment-grade life insurance company. McGuinn approves the RFP document without making any changes.

CFAI Reading 2, Standard I(C), page 43, “Standard I(C) does not prohibit members and candidates from providing information on investment products that have guarantees built into the structure of the products themselves or for which an institution has agreed to cover any losses.”
In this case, the question explicitly states that it is “a guaranteed strucutred savings product.” So the 5% is built into the product no matter what.
Also, if you look at example 6 in Standard I(C), an adviser explains that the principal of an investment that is moved to “bank-sponsored CDs and money market accounts [in the U.S.] will be guaranteed up to a certain amount.” The explanation says that this description is “not inappropriate” (because these accounts are FDIC insured by the U.S. government), but only if the amount moved falls within the government-insured limit.