Chapter 2: Ethics and Investment Professionalism Flashcards
What methods are effective for senior management of a firm to adopt to achieve a corporate culture?
a. Training
b. Setting an example
c. Communication
What is the approach for when a firm emphasises on managerial responsibility for ethical behaviour combined with a concern for the law?
An integrity-based approach combines a concern for the law with an emphasis on managerial responsibility for ethical behaviour.
What does an outcome-based regulation focus on?
Outcomes-based regulation focuses on outcomes for consumers rather than the detail of rule compliance.
What course of action should you follow when writing a report on a client and there are conflicts of interests between the company you work for and the client?
You may write the report but will need to disclose the conflicts between your company and the client, in the report. (VIA – Disclosure of Conflicts is the relevant Standard).
If you leave an employer to start a new business and you did not sign a non-compete agreement, will you breach any standards if you contact old clients to tell them of the new business using the telephone directory to obtain their telephone numbers?
You will not breach any Standards. You can contact your old clients once you have left the old company, provided you do not use your client list to do so.
An investment professional presents some research about a company at a client meeting and the presentation includes various data and charts. If they make no mention of the fact that the research comes from a financial newspaper, which standard in the CFA Code of Ethics will be breached?
Standard IC - Misrepresentation, covers plagiarism of this and other types.
Which standard of the CFA Code of Ethics states: ‘Members and candidates must determine applicable fiduciary duty and must comply with such duty to persons and interests to whom it is owed’?
Standard IIIA – Loyalty, Prudence, and Care. A fiduciary is an individual or institution that is in a position of trust: That is, they have the duty of acting for the benefit of another party in respect of matters that come within the scope of the relationship between them.
What can investment professionals employ as an accepted set of common standards when communicating information about investment performance?
The Global Investment Performance Standards (GIPS) (developed by the CFA Institute).
What can be a breach of Standard IIB – Market Manipulation?
a. Spreading a rumour about the poor health of a company’s CEO to depress its share price.
b. Distorting the price of a security by issuing a misleading statement
c. Building a dominant position in a commodity in order to influence the price of a related derivative.
What does the term ‘material’ mean in the phrase ‘material non-public information’?
Information that is likely to significantly affect the market price of the issuing company’s securities or that is likely to be considered important by reasonable investors in determining whether to trade a particular security. D IIA – Material Non-public information is the relevant Standard.
What should an investment professional do if asked to write a research report on a company when the firm they work for has represented the company in its acquisitions?
The professional may write the report if they disclose the special relationship between the firm they work for and the company they are writing about. VIA – Disclosure of Conflicts is the relevant Standard.
What should a research analyst do if they report on a firm and find out in a meeting of a negative impact on sales and the information is not known by other analysts?
The analyst must not change their recommendation under any circumstances as to do so would be a breach of the Standards. The analyst cannot trade or cause others to trade on the information unless it has been disseminated to the public. IIA Material Non-public Information is the relevant Standard.
Which of the following is most likely to conflict with CFA Institute Code and Standards?
a. Analysts may change their investment recommendations without obtaining approval from their supervisor
b. Personal account transactions by analysts should not be scrutinised for confidentiality reasons
c. A portfolio manager should conduct a fact-find about a new customer before undertaking investment action on the customer’s behalf
d. A portfolio manager receives gifts from clients but discloses these to his employer.
The answer is B. IVC – Responsibilities of Supervisors is the relevant Standard. Checks should be carried out by supervisors.
How should a portfolio manager react if the Directors at a company they prepare accounts for, asks them to vote in their favour at a forthcoming stakeholders’ meeting?
As long as the portfolio manager’s choice is supported by their own independent arguments and opinion, they will not breach any Standards. Standard IIA – Loyalty, Prudence and Care states that members have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgement. They must act for the benefit of their clients and place their clients’ interests before their employer’s or their own interests.
What should an analyst who is a CFA Institute member operating oversees do where the local laws are less strict than US laws and CFA Institute Code and Standards and where local laws apply?
IA – Knowledge of the Law is the relevant standard. The rule of thumb is to follow the stricter of applicable legal requirements, and the Code of Standards.
