Question

Soto is a founding partner and CEO of JPA, a large wealth management firm with offices throughout the world. The firm has many global institutional clients that include stateowned entities run by government officials. In an effort to build client relationships, Soto initiates a "Client Internship Program" that allows clients to refer candidates for internships at JPA. Referrals from this program are considered for employment outside of the firm’s normal rigorous and competitive hiring process. The larger the JPA client, the more likely a referral from that client would be hired into a lucrative, careerbuilding internship position. JPA hires more than 200 relatives and friends of the key executives of many JPA clients, including relatives and friends from many government agencies that JPA has investment banking or asset management relationships with. JPA generates more than $100 billion in revenue from these investments and uses the connections generated with these clients to assist other clients and navigate complicated regulatory landscapes. Soto’s actions in establishing the JPA "Client Internship Program" are

A. appropriate because the internship program benefits clients.
B. appropriate because the program is an incentive for clients that hire JPA, similar to discounted fees.
C. appropriate because the program creates a mutually beneficial business relationship between JPA and its clients.
D. a violation of the CFA Institute Code and Standards.

Answer 1

Soto's establishment of the 'Client Internship Program' at JPA, which provides internships based on client referrals over merit, is a violation of the CFA Institute Code and Standards because it undermines the integrity of the hiring process and could be seen as corrupt.

Step-by-step explanation:

The scenario involving Soto, the CEO of JPA, and the Client Internship Program raises ethical concerns under the CFA Institute Code and Standards. Offering internships not based on merit but rather on referrals from clients, especially those with government ties, could be seen as a conflict of interest or a form of corruption. The correct answer to whether Soto’s actions are in violation would be D. It is a violation of the CFA Institute Code and Standards, as these actions may undermine the integrity of the hiring process and could be perceived as a way to unduly influence or benefit from professional relationships. Internship positions should ideally be earned based on qualifications such as high grade-point averages and strong faculty recommendations to ensure fairness and maintain the integrity of the competitive process.