CAIA - Ethics - Standards IV, V and VI

Question 1

Standard IV (Duties to Employers) covers 3 areas:

1.

2.

3.

Answer 1

Standard IV (Duties to Employers) covers 3 areas:

1. Loyalty

2. Additional Compensation

3. Responsibilities of Superiors

Question 2

Members and candidates (are/are not) obligated to forgo personal responsibilities for employers.

Answer 2

Members and candidates are not obligated to forgo personal responsibilities for employers.

Question 3

Clients (should/should not) take precedence over employers.

Answer 3

Clients should take precedence over employers.

Question 4

Members and candidates are (encouraged/required) to provide a copy of the Code of Standards to employers.

Answer 4

Members and candidates are encouraged to provide a copy of the Code of Standards to employers.

Question 5

Employers (are/are not) obligated to adhere to the Code of Standards.

Answer 5

Employers are not obligated to adhere to the Code of Standards.

Question 6

Members and candidates (can/can not) take up an independent practice that may conflict with the employer.

Answer 6

Members and candidates can not take up an independent practice that may conflict with the employer.

Question 7

Members and candidates (can/can not) arrange to begin taking up an independent practice.

Answer 7

Members and candidates can arrange to begin taking up an independent practice.

Question 8

Members and candidates who wish to start and independent practice (do/ do not) need to first get their employer’s consent.

Answer 8

Members and candidates who wish to start and independent practice do need to first get their employer’s consent.

Question 9

Members and candidates (may/may not) petition clients to move business to a new place of employment.

Answer 9

Members and candidates may not petition clients to move business to a new place of employment.

Question 10

Members and candidates (may/may not) procure documents for use at a new employer without consent.

Answer 10

Members and candidates may not procure documents for use at a new employer without consent.

Question 11

Members and candidates who have started working at another firm (may/may not) contact former clients.

Answer 11

Members and candidates who have started working at another firm may contact former clients.

Question 12

Departing employees covered by the Protocol for Broker Recruiting (may/may not) use client information at their new firm. They (can/cannot) give that information to other employees at the new firm.

Answer 12

Departing employees covered by the Protocol for Broker Recruiting may use client information at their new firm. They cannot give that information to other employees at the new firm.

Question 13

If the interests of clients or general public need to be protected, members and candidates (would/would not) be breaching the duty of loyalty by informing on their employer.

Answer 13

If the interests of clients or general public need to be protected, members and candidates would not be breaching the duty of loyalty by informing on their employer.

Question 14

There (is/is not) a distinction between the duty of loyalty for employees vs independent contractors.

Answer 14

There is a distinction between the duty of loyalty for employees vs independent contractors.

Question 15

A ___ policy defines whether or under what conditions an employee may undertake independent practice.

Answer 15

A competition policy defines whether or under what conditions an employee may undertake independent practice.

Question 16

A ___ policy describes the processes related to resignation.

Answer 16

A termination policy describes the processes related to resignation.

Question 17

___ ___procedures address how a firm handles reporting of potential legal or ethical breaches.

Answer 17

Incident reporting procedures address how a firm handles reporting of potential legal or ethical breaches.

Question 18

Standard ___ states that “Members and Candidates must not accept gifts, benefits, compensation, 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 involved.

Answer 18

Standard IV(B) states that “Members and Candidates must not accept gifts, benefits, compensation, 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 involved.

Question 19

Standard ___ states that “in matters related to their employment, Members and Candidates must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer.”

Answer 19

Standard IV(A) states that “in matters related to their employment, Members and Candidates must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer.”

Question 20

Members and candidates (must/should) provide a written report to their supervisor and compliance officer with the terms of (any/some) agreement(s) under which they propose to receive additional compensation.

Answer 20

Members and candidates must provide a written report to their supervisor and compliance officer with the terms of any agreement under which they propose to receive additional compensation.

Question 21

Standard ___ states that “Members and Candidates must make reasonable efforts to detect and prevent violations of applicable laws, rules, regulations, and the Code and Standards by anyone subject to their supervision or authority.”

Answer 21

Standard IV(C) states that “Members and Candidates must make reasonable efforts to detect and prevent violations of applicable laws, rules, regulations, and the Code and Standards by anyone subject to their supervision or authority.”

Question 22

Those members/candidates with oversight responsibilities over a large staff (may/may not) delegate supervisory responsibility.

Answer 22

Those members/candidates with oversight responsibilities over a large staff may delegate supervisory responsibility.

Question 23

Supervisors (can/cannot) offer incentives to reward employees for ethical behavior.

Answer 23

Supervisors can offer incentives to reward employees for ethical behavior.

Question 24

Establishing ethical procedures (is/is not) always sufficient to satisfy the supervisory standard.

Answer 24

Establishing ethical procedures is not always sufficient to satisfy the supervisory standard.

Question 25

If members or candidates cannot fulfill supervisory responsibilities due to an inadequate or nonexistent compliance system, they should:

Answer 25

If members or candidates cannot fulfill supervisory responsibilities due to an inadequate or nonexistent compliance system, they should decline in writing to accept supervisory responsibility until reasonable procedures are established.

Question 26

Standard V (INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS) of the Code of Ethics covers 3 areas:

1.

2.

3.

Answer 26

Standard V (INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS) of the Code of Ethics covers 3 areas:

1. Diligence and reasonable basis

2. Communication with Clients and Prospective Clients

3. Record Retention

Question 27

Standard ___ states that “Members and Candidates must:

1. Exercise diligence, independence, and 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.”

Answer 27

Standard V(A) states that “Members and Candidates must:

1. Exercise diligence, independence, and 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.”

Question 28

Standard ___ “COMMUNICATIONS WITH CLIENTS AND PERSPECTIVE CLIENTS states that “Members and Candidatees must:

1. Disclose to clients and prospective clients the basic format and general principles of the investment processes they use to analyze investments, select securities, and construct portfolio and must promptly disclose any changes that might materially affect those processes.
2. Use reasonable judgment in identifying which factors are important to their investment analyses, recommendations, or actions and include those factors in communications with clients and prospective clients.
3. Distinguish between fact and opinion in the presentation of investment analyses and recommendations.

Answer 28

Standard V(B) COMMUNICATIONS WITH CLIENTS AND PERSPECTIVE CLIENTS states that “Members and Candidatees must:

1. Disclose to clients and prospective clients the basic format and general principles of the investment processes they use to analyze investments, select securities, and construct portfolio and must promptly disclose any changes that might materially affect those processes.
2. Use reasonable judgment in identifying which factors are important to their investment analyses, recommendations, or actions and include those factors in communications with clients and prospective clients.
3. Distinguish between fact and opinion in the presentation of investment analyses and recommendations.

Question 29

Use of leverage (must/should) be disclosed.

Answer 29

Use of leverage must be disclosed.

Question 30

Standard ___ states that “Members and Candidates must develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment related communications with clients and prospective clients.”

Answer 30

Standard V(C) states that “Members and Candidates must develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment related communications with clients and prospective clients.”

Question 31

Adhering to local requirements for record retention (does/does not) satisfy standard V(C).

Answer 31

Adhering to local requirements for record retention does satisfy standard V(C).

Question 32

Standard VI (CONFLICTS OF INTEREST) of the Code of Ethics covers 3 areas:

1.

2.

3.

Answer 32

Standard VI( CONFLICTS OF INTEREST) of the Code of Ethics covers 3 areas:

1. Disclosure of conflicts

2. Priority of transactions

3. Referral fees

Question 33

Standard ___ states that “Members and Candidates must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients, and employer. Members and Candidates must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively.

Answer 33

Standard VI(A) states that “Members and Candidates must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients, and employer. Members and Candidates must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively.

Question 34

The most common conflict that needs to be disclosed is:

Answer 34

The most common conflict that needs to be disclosed is stock owned by members/candidates that they intend to recommend to clients.

Question 35

Standard ___ states that “investment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner.”

Answer 35

Standard VI(B) states that “investment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner.”

Question 36

Key procedures for compliance with Standard VI(B) Priority of Transactions:

1. Limit ___
2. Restrict ___ ___
3. Establish ___ ___
4. Establish ___ ___
5. Disclose ___ ___ ___

Answer 36

Key procedures for compliance with Standard VI(B) Priority of Transactions:

1. Limit IPOs
2. Restrict private placements
3. Establish blackout periods
4. Establish reporting requirements
5. Disclose personal investing policies

Question 37

Standard ___ states that “Members and Candidates must disclose to their employers, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from or paid to others for the recommendation of products or services.”

Answer 37

Standard VI(C) states that “Members and Candidates must disclose to their employers, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from or paid to others for the recommendation of products or services.”