Views on the integrity of global capital markets
01 February 2018

Ethics in Practice: Just Protecting Client’s Assets. Case for Week of 29 January

CFA Institute Ethical Decision-Making Framework

Analysis now posted. Check it out!

Being a good investment manager means taking care of the assets your client has trusted you with. But could that ever lead to making an ethically wrong decision? Read the case and let us know what you think of the manager’s actions and why.

Case

Mary Mwangi’s firm offered its clients several different insurance products. Three of Mwangi’s clients initially purchased one type of product (Class A), but later changed their mind and asked to swap the product for another, less expensive type (Class B). To complete the transaction, the law required the clients to execute new sale and purchase documents for the Class B product. The clients wanted to sign the necessary documents at the time they met with Mwangi to switch to Class B, but the documents were not ready. Mwangi advised her clients to wait until all of the paperwork was complete. But when the time came to complete the transaction, Mwangi was unsuccessful in reaching the clients for their signatures. Without the signatures, Mwangi’s firm threatened to cancel the swap, which because of other investment purchases, would have placed the clients’ accounts into an overdraft position. Under the firm’s policies, such shortfalls were to be covered by selling account assets once the debit had been outstanding for two weeks. To keep this from happening, Mwangi forged the clients’ signatures on the necessary documents to put the swap into effect. Mwangi’s actions were

  1. unacceptable.
  2. acceptable because the clients had already given their permission for the swap.
  3. acceptable with approval from her supervisor.
  4. acceptable if the clients gave her explicit permission to sign the documents on their behalf.

Analysis

This case involves Standard I(A): Knowledge of the Law, which requires CFA Institute members to “comply with all applicable laws, rules, and regulations … governing their professional activities.” To complete the swap from the Class A to the Class B product, Mwangi’s clients were legally required to execute new sale and purchase documents, which did not happen because Mwangi forged their signatures. General approval of the transaction by the clients is insufficient to meet the legal requirement for client signatures. Obviously, approval of a supervisor to engage in illegal activities does not relieve Mwangi of her obligation to follow the law. Finally, even if the clients fully understand the circumstances and explicitly approve of Mwangi signing the forms on their behalf, the law requires that actual signatures of the clients must be on the documents. While the intent of the law is meant to protect the clients and the clients are waiving their rights, that still does not allow Mwangi to circumvent the legal requirements. The best response is A.

This case is based on a disciplinary action by the CFA Institute Professional Conduct Program. Before this incident, the member had an unblemished career in financial services for more than 15 years. The firm confronted the member about the forgeries and she readily admitted what she had done. The member was terminated by her employer for cause and they reported her to the regulatory body. The regulator determined that the member had engaged in conduct unbecoming or detrimental to the public interest and in violation of the regulatory body’s member rules. She was suspended and  fined. CFA Institute investigated and imposed a Nine-Month Suspension on the member for violation of Standard I(A): Knowledge of the Law and Standard I(C): Misrepresentation.

Have an idea for a case for us to feature? Send it to us at ethicscases@cfainstitute.org.


New release of the CFA Institute Member App now available. See below for more information.

More About the Ethics in Practice Series

Just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.

Each week, we post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions. We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the CFA Institute Code of Ethics and Standards of Professional Conduct and let us know which of the choices you believe is the right thing to do and why. If you are not a CFA Institute member, you can post your choice and reasoning in the comments section below. For CFA Institute members, we would like you to join the conversation in our new Member App and post your responses there. Later in the week, we will post an analysis of the case and you can see how your response compares.

CFA Institute Member App

The Member App gives CFA Institute members access to a content from multiple CFA Institute publications, including these weekly Ethics in Practice posts. Best of all, the app allows in-app submission of Continuing Education credits, which members can earn by reading and participating in the conversation for each case. (0.25 CE, 0.25 SER). The app is available in the Apple and Google Play stores. After downloading, simply log in using your CFA Institute website credentials (e.g., john.doe@cfainstitute.org + password).

If you have already downloaded the app, be sure to get the latest update that includes new functionality:

  • 2018 CFA Program Refresher Readings collection
  • Ability to comment/converse around Events
  • Ability to start free-standing conversations (“Forums”)
  • Year-to-Date CE credit history and ability to add credits for non-CFA Institute activities using a mobile form

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Image Credit: ©CFA Institute

About the Author(s)
Jon Stokes

Jon Stokes is the director of ethics education at CFA Institute. He is responsible for development and maintenance of the CFA Institute Code and Standards, as well as the design and management of the CFA Institute Ethical Decision Making training programs. Stokes holds a JD degree.

2 thoughts on “Ethics in Practice: Just Protecting Client’s Assets. Case for Week of 29 January”

  1. Diksha jain says:

    I believe the solution to this case is
    (D).
    If the client is explicitly permitting mwangi to sign the documents on their behalf, then it will be ethical and acceptable.
    Because in such a world where everything is uncertain and unpredictable, I believe it’s not possible every time to be present physically. So on this behalf, I’d say that it’s ethical only if clients permits mwangi explicitly.
    Furthermore, I would also recommend in that case that it would be best to sign the documents digitally to maintain the ethics of both the parties at best and to avoid any other future conflicts.

    1. mohit prasad says:

      I don’t agree Diksha. because in any xyz reason thing goes wrong, client refuse or setback in secondary conditions then thing bounce back to us an further question arises to our due diligence and practices.

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