Example 1

A client anxiously tells you that he needs to liquidate a bond portfolio immediately because he needs funds to pay for an operation for a relative. The bonds are highly liquid, but you and a colleague purchase the securities for about 75% of their market value. This is a clear violation of your fiduciary duty to the client. You have violated your position of trust. Furthermore, you have engaged in a deceitful action, which dishonors the CFA designation.

Example 2

A portfolio manager benefits a pension plan's sponsor rather than its beneficiaries by acquiring the sponsoring company's stock with the pension fund, to support its stock price, and voting proxies in support of the management, which is not in the best interest of the beneficiaries. He violates the standard because he should have made investment decisions solely in the interest of the beneficiaries of the pension plan, regardless of the sponsor's benefits.

Example 3

A portfolio manager directs trades to a brokerage firm. In return, he gets favorable treatment on his personal transactions. He violates the standard because he breaches his fiduciary duty to clients. He should have hired a brokerage firm that offers the best execution for the client.

Example 4

A portfolio manager receives research from a brokerage firm that does not directly benefit the accounts being traded. He does not violate the standard as long as he gets the best execution for his clients and discloses the soft dollar arrangement to them.

Example 5

An investment firm uses a large brokerage house, ABC. ABC's research is average, but provides asset allocation studies to make up for the large commission charged. The firm is also very friendly with ABC senior management. The standard has been violated, since soft dollars have been paid, but not for research activities.