1 / 1 - Professional Standards and Ethics

Question 1

What are the first six standards of the Standards of Professional Conduct

Answer 1

1. Professionalism
2. Integrity of Capital Markets
3. Duties to Clients
4. Duties to Employers
5. Investment Analysis, Recommendations, and Actions
6. Conflicts of Interest
7. (don’t need this one - responsibility as a CFA institute member)

Question 2

What are the 4 provisions for Standard I. Professionalism?

Answer 2

A. Knowledge of the Law - must understand and comply with all apllicable laws, rules, regulations of any gov’t, regulatory org, licensing agency, or professional association governing professional activities. In event of conflict, comply with stricter code.

B. Independence and Objectivity - must use reasonable care and judgement to achieve and maintain independence and objectivity in professional activities. Must not offer, solicit, accept any gift, benefit, comp, or consideration that could compromise their own or another’s independence and objectivity.

C. Misrepresentation - must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

D. Misconduct - must not engage in any professional conduct involving dishonesty, fraud, or deceint, or commit any act that reflects adversely on their professional reputation, integrity, or competance.

Question 3

What are the 2 provisions of standard II. Integrity of Capital Markets?

Answer 3

A. Material Nonpublic Information. Members and Candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.

B. Market Manipulation. Members and Candidates must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.

Question 4

What are the 5 provisions of Standard III. Duties to Clients?

Answer 4

A. Loyalty, Prudence, and Care. duty of loyalty to their clients, must act with reasonable care and exercise prudent judgment. must act for the benefit of their clients and place clients’interest before their employer’s or their own.

B. Fair Dealing. Must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other prof. activites.

C. Suitability.

1. When in advisory relationship with a client, must:
   
   1. Make reasonable inquiry into the client/prospect’s investment experience, risk, return objectives, and financial constraints, prior to making investment recommendation or taking investment action, and must reassess and update this info regular.
   2. determine that an investment is suitable to client’s financial situtiona and consistent with client’s written objectives, mandates, and constraings before recommendation or action
   3. Judge suitability of investmentsi n the context of client’s total portfolio
2. When responsible for managing a portfolio to a specific mandate, strategy, style, must take only investment recommendations or actions that are consistent with stated objectives/constraints of portfolio

D. Performance Presentation. When communicating investment performance info, must make reasonable efforts to ensure it is fair, accurate, complete

E. Preservation of Confidentiality. Members and Candidates must keep information about current, former, prospective clients confidential unless:

1. Info concerns illegal activities on the part of client/prospect
2. disclosure is required by law
3. client/prospect permits disclosure of the information.

Question 5

What are the 3 provisions of Standard IV. Duties to Employers?

Answer 5

A. Loyalty. In matters related to their employement, must act for the benefit of employer and not deprive employer of advantage of their skills and abilities, divulge confidential info, or otherwise cause harm to their employer.

B. Additional Comp Arrangements. Must not accept gifts, benefits, comp, or consideration that competes with, or might reasonably be expected to create a conflict of interest with, their employer’s interest unless they obtain written consent from all parties invovled.

C. Responsibilities of Supervisors. Must make reasonable effort to ensure that anyone subject to their supervision or authority complies with applicable laws, rules, regulations, and the Code of Standards.

Question 6

What are the 3 provisions of

Standard V. Investment Analysis, Recommendations, and Actions?

Answer 6

A. Diligence and REasonable Basis. Must:

1. Exercise diligence, independence, thoroughness in analyzing investments, making investment recommendations, and taking investment actions
2. Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action.

B. Communication With Clients and Prospects. Must:

1. Disclose to Cs and Ps the basic format and general principles of investment processes used to analyze investments, select securities, and construct portfolios, must promptly disclose any changes that might materially affect those processes
2. Disclose to Cs and Ps significant limitations and risks associated with the investment process.
3. Use reasonable judgment in identifying which factors are important to investment analyses, recommendations, or actions, and include those factors in comunications with Cs and Ps.
4. Distinguish between fact and opinion in the presentation of investment analyses and recs.

C. Record Retention. Must develop and maintain appropriate records to support their investment analysis, recs, actions, and other investment related communications with Cs and Ps.

Question 7

What are the 3 provisions of Standard VI. Conflicts of Interest?

Answer 7

A. Disclosure of Conflicts. must make full and fair disclosure of all maters that could reasonably be expected to impair independence and objectivity or interfere with respective duties to clients, prospects, and employer. Must ensure that such disclosures are prominent, in plain language, and communicate relevant info effectively.

B. Priority of Transactions. Investment transactions for clients and employers must have priority over investment transactions in which a Member/candidate is benefical owner.

C. Referral Fees. Members and Candidates must disclose to their employer, clients, Ps, as apropriate, any comp, consideration, or benefit received from or paid to others for the rec of products or services.