This case relates to misrepresentation of services. Avery and WSAM advertise that the company uses a proprietary share class selection calculator to achieve the goal of purchasing the most economical mutual fund share class for each client. But the calculator is sometimes used incorrectly, and for certain clients, it is not used at all. In addition, when coded incorrectly, the calculator does not recommend the most economical share class available. The fact that the calculator works when coded properly does not mitigate the fact that errors by WSAM employees render its claim misleading that the firm purchases the least costly shares for its clients.
For some clients, WSAM does determine and purchase the most economical share class but does not use the share class selection calculator as advertised and described to clients. Although the goal of purchasing economical share classes for clients is achieved through other methods, Avery and WSAM are still misleading clients by stating that the share class calculator is used when it is not. WSAM advertises its proprietary tool as an inducement to investors to hire WSAM and as a benefit to existing clients. Clients and potential clients are entitled to rely on WSAM’s description of its services when choosing an investment manager. When the process is materially changed without notification to clients or prospects, Avery is violating CFA Institute Standard I(C): Misrepresentation, which prohibits CFA Institute members from making any misrepresentations relating to investment recommendations or actions.
Even if WSAM does not benefit when more expensive share classes are purchased, clients are harmed because more expensive share classes can negatively impact the overall return of the investment. Because the claims of Avery and WSAM are misleading, Avery’s actions are unacceptable. Choice E is the best response.