DOES THE FUND’S DISCLOSURE TO ITS CLIENTS REGARDING THE RENEWAL OF...

6. Does the Fund’s disclosure to its clients regarding the renewal of the license most likely comply with the Asset Manager Code? A. No. B. Yes, the disclosure included the termination of the fund manager. C. Yes, the disclosure included the out of court settlement and payment of fine. By accessing this mock exam, you agree to the following terms of use: This mock exam is provided to currently-registered CFA candidates. Candidates may view and print the exam for personal exam preparation only. The following activities are strictly prohibited and may result in disciplinary and/or legal action: accessing or permitting access by anyone other than currently-registered CFA candidates; copying, posting to any website, emailing, distributing and/or reprinting the mock exam for any purpose. Rayne Brothers Case Scenario Erin Mutini, CFA, a South African resident, is an employee of Oakwood Asset Management (OAM), an asset management company based in South Africa. OAM manages and sells its branded mutual funds and unit trusts through agents across Africa. Mutini was recently sent to Uganda to oversee OAM's new agency agreement with Rayne Brokers (Rayne), a licensed Ugandan stock brokerage company with a strong retail customer base. Part of Mutini’s oversight role is to establish policies and procedures to ensure the Ugandan sales force represents OAM in a professional manner. As a condition of its agency agreement, OAM requires all of Rayne’s sales agents to adhere to South African financial regulations, generally considered to be stricter than those in Uganda. OAM also requires all of its sales agents to abide by the CFA Code of Ethics and Standards of Professional Conduct. OAM’s lawyer has indicated South African laws are stricter than the CFA Code and Standards. To inform the Rayne sales agents of their responsibilities under the OAM agency agreement, Mutini holds a meeting with them to discuss the financial regulations of South Africa and the CFA Code and Standards. To conclude the meeting, Mutini describes OAM’s annual competition amongst its sales agents where the winner is determined by the value of products sold (assets under management), fees generated, and the number of new clients brought in. The competition prize is an all expense paid two-week holiday for two to Mauritius. Mutini advises the staff they should concentrate their sales efforts on OAM’s front-end load funds since they earn the highest fees. She adds staff should not disclose this competition to clients. Mutini next meets with Rayne supervisors to specifically discuss their roles in upholding the CFA Standards. She informs them they are responsible for the prevention of any violations of laws, rules, regulations or the Code and Standards by the staff directly under their supervision. To make their job easier, instead of focusing equally on all of the requirements Mutini suggests the supervisors should concentrate on: • Communicating compliance policies and procedures to all covered staff; • Undertaking periodic reviews to ensure procedures are followed; and • Enforcing investment related policies. Later that day, Mutini scrutinizes Rayne’s marketing material with Rayne’s most successful sales agent, Tom Okello, another CFA Charterholder. They are preparing for a sales meeting to introduce OAM products to a potential client. Mutini notices Rayne’s responsibility to uphold the CFA Code and Standards is not mentioned anywhere in the marketing material. Neither does the material mention that some of Rayne’s employees are CFA Charterholders. Mutini notices Okello does not use the CFA designation on his business card. When Mutini asks him why, he responds, “If I use it, people will think I have a duty to Rayne’s clients. I don’t have a duty to clients, as stockbrokers in Uganda are not required to uphold a fiduciary duty. I don’t want to mislead our clients by using the CFA designation.” During the sales meeting with the potential client, Okello makes the following statements: Statement 1: “Before making an investment for any of our mutual funds or unit trusts, Rayne follows an extensive due diligence process and research analysis. We will only invest in the company if that investment meets the investment criteria that I have outlined to you.” Statement 2: “Every six months you will be mailed an itemized investment statement with cash flows so that you can see if your portfolio is meeting your investment objectives. In addition, you can obtain other information about our firm and investment process from our website, which is updated on a regular basis to ensure the integrity of the site as well as offer confidentiality and security to our clients. For your security, we do not post client statements on the website.”