An equity research CEO in Tanzania offers a premium report tier only to clients she thinks can afford it. Nothing about the fee is wrong. The selective offering is.
Level II ethics questions arrive as a long vignette with many actors. Your job is narrow: for each flagged action, name the Standard and decide violation or no violation. The trap is over-flagging. Roughly a third of tested actions are permitted.
Work each flagged action in four moves. Identify the relevant facts, the stakeholders, the duties owed, and any conflict of interest. Consider situational pressure, firm guidance, and alternative actions. Decide and act. Then reflect on whether the outcome matched the intent. On the exam, the first move does almost all the work: name the duty and the counterparty, and the Standard usually follows.
Standard III(B) Fair Dealing permits tiered service. Charge more, deliver more, publish the tiers. What Fair Dealing forbids is offering a tier selectively based on your own judgment of who deserves it, and disadvantaging clients who did not receive it.
Common mistakes
- Calling every nonpublic item material. A client contact list with trading volumes fails the price-impact test, so Standard II(A) does not apply; Standard I(D) Misconduct does.
- Blaming the wrong party for best execution. The research firm suggesting a broker is fine. The asset manager who follows that suggestion blindly violates Standard III(A).
- Assuming any special treatment breaks Fair Dealing. Calls to top clients after public posting, and IPO roadshow invitations that do not reduce other clients' allocations, are permitted.
Bottom line
- Framework: identify facts, stakeholders, duties, conflicts; consider influences and alternatives; decide and act; reflect
- III(B) Fair Dealing: tiered service allowed if disclosed and available to all; disseminate publicly before personalizing
- VI(A): disclose family or personal financial interests in covered companies prominently, or step out of coverage
- VI(C): disclose all referral consideration to employer, clients, and prospects, even when local law requires none
Exam shortcut
Answer each flagged action independently and resist a "violation" streak; permitted conduct is deliberately seeded. For each item, ask three questions in order: who is the counterparty, what duty is owed, and did the sequence disadvantage anyone? Stem signals map cleanly. "Only clients who can afford it" means III(B). "Before the report is issued" means III(B) plus, if a personal account is involved, VI(B).
The full lesson (about 2,161 words, 14 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- application level ii
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