CFA L1 Ethics Flashcards
When the laws of your jurisdiction and the CFA code & standards conflict, which should you comply with?
- Choose CFA C&S unless local law is more strict
CFA L1 Ethics - LM3 Guidance for Standards I-VII
What should you do if you know your firm is not complying to CFA Code & Standards?
- You should walk away from the firm
- However you are NOT required to report violations
- Exception is if it is a major violation and you are partly responsible
CFA L1 Ethics - LM3 Guidance for Standards I-VII
How does a member or candidate of CFA comply with the code & standards?
- Stay informed of updates and changes
- Review the procedures
- Maintain current files on laws, statutes, regulations for reference
CFA L1 Ethics - LM3 Guidance for Standards I-VII
What forms of gift, benefit or compensation could be reasonably expected to compromise independence or objectivity?
- Something large and material
- I.e., picking up lunch? unlikely
- $100,000 stock or a job offer? likely
CFA L1 Ethics - LM3 Guidance for Standards I-VII
What is a firewall?
- Separation between research and advisory team in investment banking
- Conflict of interest occurs if researchers not independent from those dealing with clients
- May feel pressured to give overly optimistic analysis
- Firewall allows information access for researchers but keeps their job separate from rest of bank
- Can still cause issues balancing access to information with quality of research (researchers have ranking on Institutional Investors platform)
CFA L1 Ethics - LM3 Guidance for Standards I-VII
What is the test for material nonpublic information?
- If the source is relaible
- If the effect on the value of the biz is clear
- Both must be true in order for the info to be material nonpublic info
- If you come to a conclusion through analysis of public info + nonmaterial nonpublic info (mosaic theory) this is a synthetic conclusion. Allowed to act on this
CFA L1 Ethics - LM3 Guidance for Standards I-VII
How should you implement the policy of suitability?
- You cannot assess each element individually for suitability
- sometimes addition of a risky asset actually reduces overall portfolio risk
- You must judge decisions in the context of the total portfolio
CFA L1 Ethics - LM3 Guidance for Standards I-VII
How does confidentiality apply to client accounts?
- You are never allowed to discuss the amount of money or the particulars of a specific account
CFA L1 Ethics - LM3 Guidance for Standards I-VII
How should differentiated service tiers have quality provided?
- The minimum level of quality of service must still be good
- Differentiated levels of service and fees must not result in unfair treatment
- The service levels and fees must be disclosed and available to all clients
CFA L1 Ethics - LM3 Guidance for Standards I-VII
Are charterholders allowed to discriminate against taking certain clients on?
- The minimum level of quality of service must still be good
- Differentiated levels of service and fees must not result in unfair treatment
- The service levels and fees must be disclosed and available to all clients
- If there is a client you feel you are unable to work with, even if personal, you are allowed to prevent them from becoming a client
- However, once you manage their money, you can’t provide them differentiated service
CFA L1 Ethics - LM3 Guidance for Standards I-VII
Why are changes in investment recommendations more critical than initial ones?
- If a client buys based on your advice and then new information comes out, it is your duty to inform them of the change
- Changes should especially be communicated to those who have acted on the earlier advice
- Clinets who place contrary orders should be advised before the order is accepted
CFA L1 Ethics - LM3 Guidance for Standards I-VII
If there are not enough shares available for all your clients who want them, how do you proceed?
- You split evenly between all the clients
- Based on fulfilling what percentage of what they wanted
- Give the same % to everyone
CFA L1 Ethics - LM3 Guidance for Standards I-VII
What is the difference between best execution and best price?
- Best price is taking up lowest order if buying and highest price if selling
- Best execution might involve taking up a large block order to get best average price across all your client’s orders
- By continually taking best price in small pieces you may push the price and get a worse average price
CFA L1 Ethics - LM3 Guidance for Standards I-VII
CFA L1 Ethics - LM3 Guidance for Standards I-VII
