Code Of Ethics & Standards Of Professional Conduct

Question 1

What are the 7 standards of professional conduct?

Answer 1

1. Individual Professionalism
2. Integrity to capital markets
3. Duties to clients
4. Duties to employers
5. Investment analysis, recommendation, & actions
6. Conflicts of interest
7. Responsibilities as a CFA institute member or CFA candidate

Question 2

What are the 6 code of ethics for members or candidates of CFA program?

Answer 2

1. Act with integrity, competence, diligence respect, and ethics with clients and others
2. Place integrity & interest of client above self
3. Use reasonable care & exercise independence when engaging in professional activities
4. Practice & encourage others to practice in professional & ethical manner
5. Promote the integrity of capital markets for benefit of society
6. Maintain & improve self & others professional competence

Question 3

What are the 4-sub standards to professionalism?

Answer 3

A. Knowledge of law
B. Independence & objectivity
C. Misrepresentation
D. Misconduct

Question 4

What are the 2 sub standards to integrity of capital markets?

Answer 4

A. Material non-public information
B. Market manipulation

Question 5

What are the 5 sub standards to duties to clients?

Answer 5

A. Loyalty, prudence, & care
B. Fair dealing
C. Suitability
D. Performance presentation
E. Preservation of confidentiality

Question 6

What are the 3 exceptions to preservation of confidentiality to clients?

Answer 6

1. Illegal activities on part of client or prospective client
2. Disclosure required by law
3. Client permits disclosure of information

Question 7

What are the 2 subsections of suitability?

Answer 7

1. Advisory relationship musts
2. Must adhere to specific mandate or strategy of portfolio

Question 8

What are the 3 rules to advisory relationship musts?

Answer 8

1. Make reasonable inquire into clients investment experience, risk & return objectives, and financial constraints
2. Determine investment is suitable based on clients financial situation, written objectives mandates, and constraints
3. Judge suitability of investments in context of clients total portfolio

Question 9

What are the 3 sub standards to duties to employers?

Answer 9

A. Loyalty
B. Additional compensation agreements
C. responsibilities of supervisors

Question 10

What are the 3 sub standards to duties to investment analysis, recommendation, & action?

Answer 10

A. Diligence & reasonable basis
B. Communication with clients
C. Record retention

Question 11

What are the 2 musts for substandard of diligence and reasonable basis?

Answer 11

1. Exercise diligence, independence, & thoroughness in investment process
2. Have reasonable basis for investment analysis, with research & investigation

Question 12

What are the 4 musts for substandard of communication with clients & prospective clients? DDRD

Answer 12

1. Disclose general principles & processes they use for investment analysis, portfolio construction, etc.
2. Disclose to clients significant limitations and risk associated with investment processes.
3. Reasonable judgement in identifying important factors for investment analysis, and communicate it.
4. Distinguish between fact & opinion in investment analysis & recommendations

Question 13

What are the 3 sub-standards to conflicts of interest?

Answer 13

A. Disclosure of conflicts
B. Priority of transactions
C. Referral fees

Question 14

What are the 2 sub standards of responsibilities as a CFA institute member or candidate?

Answer 14

1. Conduct as participants in CFA institute programs
2. Reference to CFA institute designation & program

Question 15

Describe conduct as participants in CFA institute program and reference to CFA institute designation & program?

Answer 15

• conduct as participants in CFA institute program: not engage in conduct that compromises the reputation or integrity of CFA institute or designation
• reference to CFA institute designation & program: must not misrepresent or exaggerate the meaning or implications of membership, designation, & candidacy towards the CFA institute

Question 16

The standards of practice handbook provides guidance:

A. Regarding penalties incurred as a result of ethical violations
B. To which all CFA institute members & candidates must adhere
C. Thorough explanatory material & examples intended to be all inclusive

Answer 16

B. To which all CFA institute members & candidates must adhere.

Question 17

Who does the broker commissions benefit, and what are they used for?

Answer 17

they benefit the client and should be commensurate with the value of the brokerage and research services received.

Question 18

What is a directed brokerage?

Answer 18

Directed brokerage is when a client will direct a manager to use the clients brokerage to purchase goods or services for them

Question 19

What is mosaic theory?

Answer 19

The use of material and non-material public information in an analysis

Question 20

Are client allowed to compensate portfolio managers for any extra return than expected?

Answer 20

Yes as long as the portfolio manager obtains permission from her employer prior to accepting the compensation agreement

Question 21

What is a composite?

Answer 21

Aggregation of one or more portfolios managers according to a similar investment mandate, objective, or strategy.

Question 22

Do members and candidates have to disclose civil litigations, what are civil litigations?

Answer 22

Yes they do, must disclose on all matters that question their professional conduct

Civil Litigation: where two or more parties are seeking monetary damages or a specific performance.

Question 23

What are the 3 rules to misrepresentation?

Answer 23

1. Can’t guarantee performance unless bank or insurance company
2. Plagiarism is prohibited
3. members & candidates share a responsibility for accuracy of materials that pertain to third party’s capabilities, services, and products.

Question 24

Are acts of civil disobedience based on personal beliefs a violation of conduct? Eg. Protesting peacefully and you get arrested.

Answer 24

No acts of civil disobedience based on personal beliefs is not a violation of this standard