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ETHICS Flashcards

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1
Q

What is Ethics

A

Ethics encompasses a set of moral principles and rules of conduct that provide
guidance for our behavior.

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2
Q

How does a standard of conduct serve

A

serve as
benchmarks for the minimally acceptable behavior of community members and can
help clarify the code of ethics.

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3
Q

Code of Ethics

A

Specific communities or societal groups in which we live and work sometimes codify their beliefs about obligatory and forbidden conduct in a written set of principles,

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4
Q

Profession

A

A profession is an occupational community that has specific education, expert
knowledge, and a framework of practice and behavior that underpins community
trust, respect, and recognition.

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5
Q

Professions normalize practitioner behavior.

A

Professionalism is underpinned by

codes and standards developed by professional bodies.

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6
Q

Professions provide a service to society

A

There is an obligation for professionals to go

beyond codes and standards.

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7
Q

Professions are client focused

A

An integral part of a profession’s mission is to develop

and administer codes, best practice guidelines, and standards that guide an industry

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8
Q

Professions have high entry standards

A

Membership in a profession is a signal to the
market that the professional will deliver high- quality service of a promised standard,
going beyond simply academic credentials.

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9
Q

Professions possess a body of expert knowledge.

A

A repository of knowledge,
developed by experienced and skilled practitioners, is made available to all members
of a profession

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10
Q

Professions encourage and facilitate continuing education.

A

Entry into a profession does not, on its own, guarantee that an individual will maintain competency and
continue to uphold professional standards. A

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11
Q

Professions monitor professional conduct.

A

Members of a profession must be held

accountable for their conduct to maintain the integrity and reputation of an industry

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12
Q

Professions are collegial.

A

Professionals should be respectful to each other, even

when they are competing.

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13
Q

A profession’s code of

ethics:

A

publicly communicates the shared principles and expected behaviors
of a profession’s members

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14
Q

Situational influences

A

External factors, such as environmental or cultural elements, that shape our thinking, decision making, and behavior.

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15
Q

What determines whether an individual will behave unethically

A

External factors, such as environmental or cultural elements

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16
Q

Types of Conduct

A

Legal,Legal & Ethical and Ethical

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17
Q

Judgement

A

the ability to make

considered decisions and reach sensible conclusions.

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18
Q

Strategy to build trust

A

increase the ability and motivation of market participants to act ethically
and help them minimize the likelihood of unethical actions.

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19
Q

ICDR

A

Identify,Consider,Decide,Reflect

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20
Q

Challenges to ethical behavior

A

being overconfident in our own morality,
underestimating the effect of situational influences, and focusing on the immediate rather than long- term outcomes or consequences of a decision.

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21
Q

The Standards of Practice Handbook

A

provides guidance to the people
who grapple with real ethical dilemmas in the investment profession on a daily basis;
the Handbook addresses the professional intersection where theory meets practice
and where the concept of ethical behavior crosses from the abstract to the concrete.

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22
Q

What does the handbook contains

A

contain practical ethical principles of conduct that members and candidates must follow to achieve the broader
industry expectations.

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23
Q

When does the code should be reviewed

A

must be regularly reviewed and updated if they are to
remain effective and continue to represent the highest ethical standards in the global
investment industry.

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24
Q

What does the CFA believes how the revisions should be

A

CFA Institute strongly believes that revisions of the Code and
Standards are not undertaken for cosmetic purposes but to add value by addressing
legitimate concerns and improving comprehension.

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25
Q

What is required by the CFA members and candidates

A

CFA

Institute members and candidates are required to adhere to the Code and Standards.

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26
Q

What does the handbook seeks to do

A

The Handbook
seeks to educate members and candidates on how to apply the Code and Standards to
their professional lives and thereby benefit their clients, employers, and the investing
public in general.

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27
Q

What is the CFA Institute Board of Governors

A

maintains oversight and responsibility for the Professional Conduct Program (PCP), which,
in conjunction with the Disciplinary Review Committee (DRC), is responsible for
enforcement of the Code and Standards.

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28
Q

What is the Disciplinary Review Committee

A

The DRC is a volunteer committee of CFA
charterholders who serve on panels to review conduct and partner with Professional
Conduct staff to establish and review professional conduct policies.

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29
Q

One source of Professional Conduct

A

members
and candidates must self- disclose on the annual Professional Conduct Statement all
matters that question their professional conduct, such as involvement in civil litigation
or a criminal investigation or being the subject of a written complaint.

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30
Q

How does the CFA becomes aware of questionable conduct by a member

A

through the media, regulatory notices, or another public source.

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31
Q

What happens when an inquiry is initiated

A

When an inquiry is initiated, the Professional Conduct staff conducts an investigation that may include requesting a written explanation from the member or candidate;
interviewing the member or candidate, complaining parties, and third parties; and
collecting documents and records relevant to the investigation.

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32
Q

What happens after the review

A

Upon reviewing the
material obtained during the investigation, the Professional Conduct staff may conclude the inquiry with no disciplinary sanction, issue a cautionary letter, or continue
proceedings to discipline the member or candidate.

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33
Q

What are the sanctions imposed by the CFA

A

Sanctions imposed by CFA Institute may have significant consequences; they
include public censure, suspension of membership and use of the CFA designation,
and revocation of the CFA charter. Candidates enrolled in the CFA Program who have
violated the Code and Standards or testing policies may be suspended or prohibited
from further participation in the CFA Program.

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34
Q

Does the CFA welcomes public acknowledgment of compliance

A

Yes when appropiate and notify the CFA the adoption plans

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35
Q

What is The CFA Institute Standards of Practice Council (SPC),

A

a group consisting of CFA
charterholder volunteers from many different countries, is charged with maintaining
and interpreting the Code and Standards and ensuring that they are effective.

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36
Q

Whats the mission of the Code and Standards

A

lead the
investment profession globally by promoting the highest standards of ethics, education,
and professional excellence for the ultimate benefit of society.

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37
Q

The Code of Ethics

A

■ Act with integrity, competence, diligence, and respect and in an ethical manner
with the public, clients, prospective clients, employers, employees, colleagues in
the investment profession, and other participants in the global capital markets.
■ Place the integrity of the investment profession and the interests of clients
above their own personal interests.
■ Use reasonable care and exercise independent professional judgment when
conducting investment analysis, making investment recommendations, taking
investment actions, and engaging in other professional activities.
■ Practice and encourage others to practice in a professional and ethical manner
that will reflect credit on themselves and the profession.
■ Promote the integrity and viability of the global capital markets for the ultimate
benefit of society.
■ Maintain and improve their professional competence and strive to maintain and
improve the competence of other investment professionals

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38
Q

Standard I(Professionalism)

A

Knowledge of the Law,Independence and Objectivity,Misrepresentation,Misconduct

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39
Q

Standard II(Integrity of Capital Markets)

A

Material Nonpublic Information,Market Manipulation

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40
Q

Standard III(Duties to Clients)

A

Loyalty, Prudence, and Care,Fair Dealing,Suitability,Performance Presentation,Preservation of Confidentiality

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41
Q

Standard IV(Duties to Employers)

A

Loyalty,Additional Compensation Arrangements,Responsibilities of Supervisors

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42
Q

Standard V(Investment Analysis,Recommendations and Actions)

A

Diligence and Reasonable Basis,Communication with Clients and Prospective Clients,Record Retention

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43
Q

Standard VI(Conflicts of Interest)

A

Disclosure of Conflicts,Priority of Transactions,Referral Fees

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44
Q

Standard VII(Responsibilities as a CFA member or Candidates)

A

Conduct as Participants in CFA Institute Programs,Reference to CFA Institute, the CFA Designation, and the CFA Program

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45
Q

Standard IA Knowledge of the Law

A

Members and Candidates must understand and comply with all applicable laws, rules,
and regulations (including the CFA Institute Code of Ethics and Standards of Professional
Conduct) of any government, regulatory organization, licensing agency, or professional
association governing their professional activities. In the event of conflict, Members
and Candidates must comply with the more strict law, rule, or regulation. Members and
Candidates must not knowingly participate or assist in and must dissociate from any
violation of such laws, rules, or regulations.

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46
Q

What does one do in the event you are doing business in a less strict country

A

When applicable law and the Code and Standards require different conduct, members and candidates must follow the more strict of the applicable law or the Code and Standards.

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47
Q

What principles does members and candidates must comply

A

■ Members and candidates must comply with applicable laws or regulations
related to their professional activities.
■ Members and candidates must not engage in conduct that constitutes a violation of the Code and Standards, even though it may otherwise be legal.
■ In the absence of any applicable law or regulation or when the Code and
Standards impose a higher degree of responsibility than applicable laws and
regulations, members and candidates must adhere to the Code and Standards.

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48
Q

What are the CFA members obligated to

A

to abide by the CFA Institute Articles of
Incorporation, Bylaws, Code of Ethics, Standards of Professional Conduct, Rules of
Procedure, Membership Agreement, and other applicable rules promulgated by CFA
Institute, all as amended periodically.

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49
Q

Steps to dissociate from ethical violations

A

The first step should be to attempt to stop the behavior by
bringing it to the attention of the employer through a supervisor or the firm’s compliance department. If this attempt is unsuccessful, then members and candidates have
a responsibility to step away and dissociate from the activity. Dissociation practices
will differ on the basis of the member’s or candidate’s role in the investment industry.
It may include removing one’s name from written reports or recommendations, asking
for a different assignment, or refusing to accept a new client or continue to advise a
current client. Inaction combined with continuing association with those involved
in illegal or unethical conduct may be construed as participation or assistance in the
illegal or unethical conduct

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50
Q

Methods of compliance

A

Stay informed: Members and candidates should establish or encourage their
employers to establish a procedure by which employees are regularly informed
about changes in applicable laws, rules, regulations, and case law.

Review procedures: Members and candidates should review, or encourage their
employers to review, the firm’s written compliance procedures on a regular
basis to ensure that the procedures reflect current law and provide adequate
guidance to employees about what is permissible conduct under the law and/
or the Code and Standards.

Maintain current files: Members and candidates should maintain or encourage
their employers to maintain readily accessible current reference copies of applicable statutes, rules, regulations, and important cases

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51
Q

Should you get legal council

A

Yes,When in doubt about the appropriate action to undertake, it is recommended that
a member or candidate seek the advice of compliance personnel or legal counsel
concerning legal requirements.

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52
Q

What policies or procedures members should encourage firms to consider

A

Develop and/or adopt a code of ethics,Provide information on applicable laws,Establish procedures for reporting violation

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53
Q

Standard I(B) Independence and Objectivity

A

Members and Candidates must use reasonable care and judgment to achieve and maintain
independence and objectivity in their professional activities. Members and Candidates
must not offer, solicit, or accept any gift, benefit, compensation, or consideration that
reasonably could be expected to compromise their own or another’s independence
and objectivity

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54
Q

Should you accept benefits from clients

A

When possible, prior to
accepting “bonuses” or gifts from clients, members and candidates should disclose to
their employers such benefits offered by clients. If notification is not possible prior to
acceptance, members and candidates must disclose to their employer benefits previously accepted from clients. Disclosure allows the employer of a member or candidate
to make an independent determination about the extent to which the gift may affect
the member’s or candidate’s independence and objectivity

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55
Q

Recommendations

A

Recommendations must convey the
member’s or candidate’s true opinions, free of bias from internal or external pressures,
and be stated in clear and unambiguous language.

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56
Q

Source of Pressure

A

buy- side clients. Institutional clients
are traditionally the primary users of sell- side research, either directly or with soft
dollar brokerage. Portfolio managers may have significant positions in the security
of a company under review. A rating downgrade may adversely affect the portfolio’s
performance, particularly in the short term, because the sensitivity of stock prices
to ratings changes has increased in recent years.

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57
Q

When is appropiate for research analysts to work with investment bankers

A

Having analysts work
with investment bankers is appropriate only when the conflicts are adequately and
effectively managed and disclosed. Firm managers have a responsibility to provide an
environment in which analysts are neither coerced nor enticed into issuing research
that does not reflect their true opinions. Firms should require public disclosure of
actual conflicts of interest to investors

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58
Q

Analysts must distinguish fact from opinion

A

Yes,Conclusions must have a reasonable and adequate basis and must be supported by appropriate research

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59
Q

Recommendend Procedures for Compliance

A

■ Protect the integrity of opinions: Members, candidates, and their firms should
establish policies stating that every research report concerning the securities
of a corporate client should reflect the unbiased opinion of the analyst.
■ Create a restricted list: If the firm is unwilling to permit dissemination of
adverse opinions about a corporate client, members and candidates should
encourage the firm to remove the controversial company from the research universe and put it on a restricted
■ Restrict special cost arrangements: When attending meetings at an issuer’s
headquarters, members and candidates should pay for commercial transportation and hotel charges.

■ Limit gifts: Members and candidates must limit the acceptance of gratuities
and/or gifts to token items. Standard I(B) does not preclude customary, ordinary business- related entertainment as long as its purpose is not to influence
or reward members or candidates.
■ Restrict investments: Members and candidates should encourage their investment firms to develop formal policies related to employee purchases of equity or equity- related IPOs.
■ Review procedures
■ Independence policy: Members, candidates, and their firms should establish
a formal written policy on the independence and objectivity of research and
implement reporting structures and review procedures to ensure that research
analysts do not report to and are not supervised or controlled by any department of the firm that could compromise the independence of the analyst.
■ Appointed officer: Firms should appoint a senior officer with oversight responsibilities for compliance with the firm’s code of ethics and all regulations concerning its business

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60
Q

Standard I(C) Misrepresentation

A

Members and Candidates must not knowingly make any misrepresentations relating to
investment analysis, recommendations, actions, or other professional activities

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61
Q

What is misrepresentation

A

A misrepresentation is any untrue statement or omission of a fact or any statement
that is otherwise false or misleading. A member or candidate must not knowingly
omit or misrepresent information or give a false impression of a firm, organization,
or security in the member’s or candidate’s oral representations, advertising (whether
in the press or through brochures), electronic communications, or written materials
(whether publicly disseminated or not)

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62
Q

What includes as written materials and internet communications

A

research reports, underwriting
documents, company financial reports, market letters, newspaper columns, and books.
Electronic communications include, but are not limited to, internet communications,
webpages, mobile applications, and e- mails

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63
Q

What does Standard I C prohibits

A

prohibits members and candidates from guaranteeing clients any specific return on volatile investment

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64
Q

What do with third party information

A

Misrepresentations resulting from the use of the credit
ratings, research, testimonials, or marketing materials of outside parties become
the responsibility of the investment professional when it affects that professional’s business practices

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65
Q

Another form of misrepresentation

A

Members and candidates may misrepresent the success of their
performance record through presenting benchmarks that are not comparable to their
strategies

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66
Q

What bench mark should an investor use

A

Members and candidates should discuss with clients on a continuous
basis the appropriate benchmark to be used for performance evaluations and related
fee calculations

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67
Q

Does an omission of a fact or outcome can be misleading?

A

Yes,When inputs are knowingly omitted, the resulting outcomes may provide misleading
information to those who rely on it for making investment decisions

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68
Q

Does Standard I(C) prohibits Plagiarism?

A

Yes,Members and candidates must not copy (or represent as their own) original ideas or material without permission and must acknowledge and identify the source of ideas or material that is not their own.

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69
Q

Can you use research conducted within the same firm?

A

Research and models developed
while employed by a firm are the property of the firm. The firm retains the right to
continue using the work completed after a member or candidate has left the organization. The firm may issue future reports without providing attribution to the prior analysts.

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70
Q

Recommended Procedures for compliance

A

Factual Presentations,Qualification Summary,Verify Outside Information,Maintain Webpages,Plagiarism Policy

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71
Q

Standard 1(D) Misconduct

A

Members and Candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional
reputation, integrity, or competence.

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72
Q

What does Standard 1 ( D) addresses

A

addresses
all conduct that reflects poorly on the professional integrity, good reputation, or
competence of members and candidates. Any act that involves lying, cheating, stealing, or other dishonest conduct is a violation of this standard if the offense reflects
adversely on a member’s or candidate’s professional activities.

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73
Q

Can the absence of effort be in violation of Standard 1 (D)

A

In some cases, the absence of appropriate conduct or the lack of sufficient effort
may be a violation of Standard I(D).

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74
Q

Recommended Procedures for Compliance

A

■ Code of ethics: Develop and/or adopt a code of ethics to which every employee
must subscribe, and make clear that any personal behavior that reflects poorly
on the individual involved, the institution as a whole, or the investment industry will not be tolerated.
■ List of violations: Disseminate to all employees a list of potential violations and
associated disciplinary sanctions, up to and including dismissal from the firm.
■ Employee references: Check references of potential employees to ensure that
they are of good character and not ineligible to work in the investment industry
because of past infractions of the la

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75
Q

Does Standard I(d) covers civil disobedience

A

Yes Generally, Standard I(D) is not meant to cover legal transgressions resulting from

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76
Q

Standard II(A) Material Nonpublic Information

A

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.

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77
Q

What is Material Information

A

Information is “material” if its disclosure would probably have an impact on the price
of a security or if reasonable investors would want to know the information before
making an investment decision. In other words, information is material if it would
significantly alter the total mix of information currently available about a security in
such a way that the price of the security would be affected

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78
Q

Does Factual infomation is material?

A

factual information from a corporate insider regarding a significant new
contract for a company is likely to be material, whereas an assumption based on
speculation by a competitor about the same contract is likely to be less reliable and,
therefore, not material

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79
Q

When does information is nonpublic

A

Information is “nonpublic” until it has been disseminated or is available to the marketplace in general (as opposed to a select group of investors). “Disseminated” can be
defined as “made known.” For example, a company report of profits that is posted on
the internet and distributed widely through a press release or accompanied by a filing
has been effectively disseminated to the marketplace

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80
Q

What activities is possible to use material nonpublic information

A

mergers, loan
underwriting, credit ratings, and offering engagements. In such instances, the investment professional would not be considered in violation of Standard II(A) by using
the material information

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81
Q

Whats a case when one is not in violation

A

Accordingly, violations of Standard II(A) will not result when
a perceptive analyst reaches a conclusion about a corporate action or event through
an analysis of public information and items of nonmaterial nonpublic information

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82
Q

Recommended Procedures for Compliance

A

Achieve Public Dissemination
If a member or candidate determines that information is material, the member or
candidate should make reasonable efforts to achieve public dissemination of the
information. These efforts usually entail encouraging the issuing company to make the
information public.

Adopt Disclosure Procedures
Members and candidates should encourage their firms to develop and follow disclosure policies designed to ensure that information is disseminated to the marketplace
in an equitable manner

Issue Press Releases
Companies should consider issuing press releases prior to analyst meetings and
conference calls and scripting those meetings and calls to decrease the chance that
further information will be disclosed. If material nonpublic information is disclosed
for the first time in an analyst meeting or call, the company should promptly issue a
press release or otherwise make the information publicly available

Firewall Elements
An information barrier commonly referred to as a “firewall” is the most widely used
approach for preventing the communication of material nonpublic information within
firms. It restricts the flow of confidential information to those who need to know the
information to perform their jobs effectively.

Appropriate Interdepartmental Communications
Although documentation requirements must, for practical reasons, take into account
the differences between the activities of small firms and those of large, multiservice
firms, firms of all sizes and types benefit by improving the documentation of their
internal enforcement of firewall procedures.

Prevention of Personnel Overlap
There should be no overlap of personnel between the investment banking and corporate
finance areas of a brokerage firm and the sales and research departments or between
a bank’s commercial lending department and its trust and research departments.

A Reporting System
A primary objective of an effective firewall procedure is to establish a reporting
system in which authorized people review and approve communications between
departments. If an employee behind a firewall believes that he or she needs to share
confidential information with someone on the other side of the wall, the employee
should consult a designated compliance officer to determine whether sharing the
information is necessary and how much information should be shared.

Personal Trading Limitations
Firms should consider restrictions or prohibitions on personal trading by employees and should carefully monitor both proprietary trading and personal trading by
employees. Firms should require employees to make periodic reports (to the extent
that such reporting is not already required by securities laws) of their own transactions
and transactions made for the benefit of family member

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83
Q

Standard II(B) Market Manipulation

A

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

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84
Q

What includes Market Manipulation

A

Market manipulation includes (1) the dissemination of false or misleading information and (2) transactions that deceive or would be likely to mislead market participants
by distorting the price- setting mechanism of financial instruments.

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85
Q

Information Based Manipulation

A

Information- based manipulation includes, but is not limited to, spreading false rumors
to induce trading by others.

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86
Q

Standard III(A) Loyalty, Prudence, and Care

A

embers and Candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment. Members and Candidates must act for
the benefit of their clients and place their clients’ interests before their employer’s or
their own interests.

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87
Q

What’s paramount to Standard III(A)

A

clarifies that client interests are paramount. A member’s or candidate’s
responsibility to a client includes a duty of loyalty and a duty to exercise reasonable
care.

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88
Q

What does it establishes the standard III(A)

A

Standard III(A) establishes a minimum benchmark for the duties of loyalty, prudence,
and care that are required of all members and candidates regardless of whether a legal
fiduciary duty applies.

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89
Q

Who is due the loyalty

A

The duty of loyalty is owed

to the ultimate beneficiaries.

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90
Q

What a member and candidate do

A

Members and candidates must follow any guidelines set by their clients for the
management of their assets. Some clients, such as charitable organizations and pension
plans, have strict investment policies that limit investment options to certain types
or classes of investment or prohibit investment in certain securities. Other organizations have aggressive policies that do not prohibit investments by type but, instead,
set criteria on the basis of the portfolio’s total risk and return

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91
Q

What is soft commissions

A

An investment manager often has discretion over the selection of brokers executing
transactions. Conflicts may arise when an investment manager uses client brokerage
to purchase research services

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92
Q

Recommended Procedures for Compliance

A

Regular Account Information
Members and candidates with control of client assets (1) should submit to each client, at least quarterly, an itemized statement showing the funds and securities in the
custody or possession of the member or candidate plus all debits, credits, and transactions that occurred during the period, (2) should disclose to the client where the
assets are to be maintained, as well as where or when they are moved, and (3) should
separate the client’s assets from any other party’s assets, including the member’s or
candidate’s own assets

Client Approval
If a member or candidate is uncertain about the appropriate course of action with
respect to a client, the member or candidate should consider what he or she would
expect or demand if the member or candidate were the client. If in doubt, a member
or candidate should disclose the questionable matter in writing to the client and
obtain client approval

Firm Policies
Members and candidates should address and encourage their firms to address the
following topics when drafting the statements or manuals containing their policies
and procedures regarding responsibilities to clients.

93
Q

Standard III(B) Fair Dealing

A

Members and Candidates must deal fairly and objectively with all clients when providing
investment analysis, making investment recommendations, taking investment action,
or engaging in other professional activities.

94
Q

What does the Standard III(B) doesnt states

A

Standard III(B) does not state “equally” because members
and candidates could not possibly reach all clients at exactly the same time.Each client has unique needs,
investment criteria, and investment objectives, so not all investment opportunities
are suitable for all client.

95
Q

Investment Recommendations

A

An investment recommendation is any opinion expressed by a member or candidate in regard to purchasing, selling, or holding a given security or other investment.
The opinion may be disseminated to customers or clients through an initial detailed
research report, through a brief update report, by addition to or deletion from a list
of recommended securities, or simply by oral communication.

. Each member or candidate is obligated to ensure that information is disseminated in such a manner that
all clients have a fair opportunity to act on every recommendation.

96
Q

Investment Action

A

members and candidates whose primary function is taking investment action (portfolio management) on the basis of
recommendations prepared internally or received from external sources. Investment
action, like investment recommendations, can affect market value. Consequently,
Standard III(B) requires that members or candidates treat all clients fairly in light of
their investment objectives and circumstance.

97
Q

What do in new offerings or secondary

A

members and candidates should
distribute the issues to all customers for whom the investments are appropriate in a
manner consistent with the policies of the firm for allocating blocks of stock.

98
Q

Recommended Procedures for Compliance

A

Develop Firm Policies
Although Standard III(B) refers to a member’s or candidate’s responsibility to deal
fairly and objectively with clients, members and candidates should also encourage
their firms to establish compliance procedures requiring all employees who disseminate investment recommendations or take investment actions to treat customers and
clients fairly.

Disclose Trade Allocation Procedures
Members and candidates should disclose to clients and prospective clients how they
select accounts to participate in an order and how they determine the amount of
securities each account will buy or sell.

Establish Systematic Account Review
Member and candidate supervisors should review each account on a regular basis to
ensure that no client or customer is being given preferential treatment and that the
investment actions taken for each account are suitable for each account’s objectives.

Disclose Levels of Service
Members and candidates should disclose to all clients whether the organization offers
different levels of service to clients for the same fee or different fees. Different levels
of service should not be offered to clients selectively

99
Q

Standard III(C) Suitability

A

1 When Members and Candidates are in an advisory relationship with a client, they
must:
a Make a reasonable inquiry into a client’s or prospective client’s investment
experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must
reassess and update this information regularly.
b Determine that an investment is suitable to the client’s financial situation
and consistent with the client’s written objectives, mandates, and constraints
before making an investment recommendation or taking investment action.
c Judge the suitability of investments in the context of the client’s total
portfolio.
2 When Members and Candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must make only investment recommendations or take only investment actions that are consistent with the stated objectives
and constraints of the portfolio

100
Q

What does Standard III (C) requires

A

Standard III(C) requires that members and candidates who are in an investment
advisory relationship with clients consider carefully the needs, circumstances, and
objectives of the clients when determining the appropriateness and suitability of a given
investment or course of investment action.

101
Q

Whats the responsibility of members and candidates

A

The responsibilities of members and candidates to gather information and make
a suitability analysis prior to making a recommendation or taking investment action
fall on those members and candidates who provide investment advice in the course of
an advisory relationship with a client.

102
Q

Developing an Investment Policy

A

When an advisory relationship exists, members and candidates must gather client
information at the inception of the relationship. Such information includes the client’s financial circumstances, personal data (such as age and occupation) that are
relevant to investment decisions, attitudes toward risk, and objectives in investing.
This information should be incorporated into a written investment policy statement
(IPS) that addresses the client’s risk tolerance, return requirements, and all investment
constraints (including time horizon, liquidity needs, tax concerns, legal and regulatory
factors, and unique circumstances).

103
Q

Important Factors to be considered

A

measuring that
client’s tolerance for risk. The investment professional must consider the possibilities
of rapidly changing investment environments and their likely impact on a client’s
holdings, both individual securities and the collective portfolio. The risk of many
investment strategies can and should be analyzed and quantified in advance.

104
Q

When to update the IPS

A

Updating the IPS should be repeated at least annually and also prior to material
changes to any specific investment recommendations or decisions on behalf of the
client. The effort to determine the needs and circumstances of each client is not a
one- time occurrence.

105
Q

What happens if a client witholds information

A

If clients withhold information about their financial portfolios,
the suitability analysis conducted by members and candidates cannot be expected to
be complete; it must be based on the information provided

106
Q

Addressing Unsolicited Trading Requests

A

members and candidates will need to make reasonable efforts to balance their clients’ trading requests with their responsibilities to
follow the agreed- on investment policy statement.

107
Q

What to do if a client declines to update IPS

A

Members and candidates may have some clients who decline to modify their
policy statements while insisting an unsolicited trade be made. In such instances,
members or candidates will need to evaluate the effectiveness of their services to the
client

108
Q

Managing to an Index or Mandate

A

The responsibility for determining the suitability of an
investment for clients can be conferred only on members and candidates who have
an advisory relationship with clients.

109
Q

Recommended Procedures for Compliance

A

Investment Policy Statement
To fulfill the basic provisions of Standard III(C), a member or candidate should put
the needs and circumstances of each client and the client’s investment objectives into
a written investment policy statement.

Regular Updates
The investor’s objectives and constraints should be maintained and reviewed periodically to reflect any changes in the client’s circumstances. Members and candidates
should regularly compare client constraints with capital market expectations to arrive
at an appropriate asset allocation

Suitability Test Policies
With the increase in regulatory required suitability tests, members and candidates
should encourage their firms to develop related policies and procedures. The procedures will differ according to the size of the firm and the scope of the services offered
to its clients

110
Q

Standard III(D) Performance Presentation

A

When communicating investment performance information, Members and Candidates
must make reasonable efforts to ensure that it is fair, accurate, and complete

111
Q

What does Standard III(D) requires

A

Standard III(D) requires members and candidates to provide credible performance
information to clients and prospective clients and to avoid misstating performance
or misleading clients and prospective clients about the investment performance of
members or candidates or their firms.

112
Q

What should be avoided

A

members and candidates should not state or imply that clients
will obtain or benefit from a rate of return that was generated in the past

113
Q

Recommended Procedures for Compliance

A

Apply the GIPS Standards
For members and candidates who are showing the performance history of the assets
they manage, compliance with the GIPS standards is the best method to meet their
obligations under Standard III(D). Members and candidates should encourage their
firms to comply with the GIPS standards.

114
Q

Compliance without GIPS STANDARDS

A

Compliance without Applying GIPS Standards
Members and candidates can also meet their obligations under Standard III(D) by
■ considering the knowledge and sophistication of the audience to whom a performance presentation is addressed,
■ presenting the performance of the weighted composite of similar portfolios
rather than using a single representative account,
■ including terminated accounts as part of performance history with a clear indication of when the accounts were terminated,
■ including disclosures that fully explain the performance results being reported
(for example, stating, when appropriate, that results are simulated when model
results are used, clearly indicating when the performance record is that of a
prior entity, or disclosing whether the performance is gross of fees, net of fees,
or after tax), and
■ maintaining the data and records used to calculate the performance being
presented.

115
Q

What do if claiming compliance of GIPS standards

A

When claiming compliance with the GIPS standards, firms must meet all of the requirements,
make mandatory disclosures, and meet any other requirements that apply
to that firm’s specific situation.

116
Q

Standard III(E) Preservation of Confidentiality

A

Members and Candidates must keep information about current, former, and prospective
clients confidential unless:
1 The information concerns illegal activities on the part of the client;
2 Disclosure is required by law; or
3 The client or prospective client permits disclosure of the information

117
Q

What does Standard III(E) Preservation of Confidentiality

A

Standard III(E) requires that members and candidates preserve the confidentiality of
information communicated to them by their clients, prospective clients, and former
clients.

118
Q

Status of Client

A

This standard protects the confidentiality of client information even if the person
or entity is no longer a client of the member or candidate. Therefore, members and
candidates must continue to maintain the confidentiality of client records even after
the client relationship has ended.

119
Q

Compliance with Laws

A

As a general matter, members and candidates must comply with applicable law. If applicable law requires disclosure of client information in certain circumstances, members
and candidates must comply with the law. Similarly, if applicable law requires members
and candidates to maintain confidentiality,

120
Q

Recommended Procedures for Compliance

A

The simplest, most conservative, and most effective way to comply with Standard III(E)
is to avoid disclosing any information received from a client except to authorized
fellow employees who are also working for the client.

121
Q

Standard IV(A) Loyalty

A

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.

122
Q

What does Standard IV(A) Loyalty

A

Standard IV(A) requires members and candidates to protect the interests of their
firm by refraining from any conduct that would injure the firm, deprive it of profit, or
deprive it of the member’s or candidate’s skills and ability

123
Q

Employer Responsibilities

A

Members and candidates are encouraged to provide their employer with a copy
of the Code and Standards.mployers are not obligated to adhere to the Code and Standards. In expecting
to retain competent employees who are members and candidates, however, they
should not develop conflicting policies and procedures.

124
Q

Independent Practice

A

Included in Standard IV(A) is the requirement that members and candidates abstain
from independent competitive activity that could conflict with the interests of their
employer. Although Standard IV(A) does not preclude members or candidates from
entering into an independent business while still employed, members and candidates
who plan to engage in independent practice for compensation must notify their
employer and describe the types of services they will render to prospective independent
clients, the expected duration of the services, and the compensation for the services.

125
Q

Leaving an Employer

A

Activities that might constitute a violation, especially in combination,
include the following:
■ misappropriation of trade secrets,
■ misuse of confidential information,
■ solicitation of the employer’s clients prior to cessation of employment,
■ self- dealing (appropriating for one’s own property a business opportunity or
information belonging to one’s employer), and
■ misappropriation of clients or client lists.

126
Q

Can members and candidates contact former clients

A

The standard does not prohibit former employees from contacting clients of their
previous firm as long as the contact information does not come from the records of
the former employer or violate an applicable “noncompete agreement.” Members and
candidates are free to use public information after departing to contact former clients
without violating Standard IV(A) as long as there is no specific agreement not to do so.

127
Q

Whistleblowing

A

Such action would be permitted only if the intent is clearly aimed at
protecting clients or the integrity of the market, not for personal gain.

128
Q

Recommended Procedures for Compliance

A

Competition Policy
A member or candidate must understand any restrictions placed by the employer
on offering similar services outside the firm while employed by the firm. The policy
may outline the procedures for requesting approval to undertake the outside service
or may be a strict prohibition of such service.

Termination Policy
Members and candidates should clearly understand the termination policies of their
employer.

Incident- Reporting Procedures
Members and candidates should be aware of their firm’s policies related to whistleblowing and encourage their firm to adopt industry best practices in this area. Many
firms are required by regulatory mandates to establish confidential and anonymous
reporting procedures that allow employees to report potentially unethical and illegal
activities in the firm.

129
Q

Standard IV(B) Additional Compensation Arrangements

A

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

130
Q

What does Standard IV(B) Additional Compensation Arrangements

A

Standard IV(B) requires members and candidates to obtain permission from their
employer before accepting compensation or other benefits from third parties for the
services rendered to the employer or for any services that might create a conflict with
their employer’s interest. Compensation and benefits include direct compensation by
the client and any indirect compensation or other benefits received from third parties.

131
Q

What includes as written consent

A

“Written consent” includes any form of communication that can be documented (for
example, communication via e- mail that can be retrieved and documented).

132
Q

Recommended Procedures of Compliance

A

Members and candidates should make an immediate written report to their supervisor
and compliance officer specifying any compensation they propose to receive for services
in addition to the compensation or benefits received from their employer. The details
of the report should be confirmed by the party offering the additional compensation,
including performance incentives offered by clients. This written report should state
the terms of any agreement under which a member or candidate will receive additional compensation; “terms” include the nature of the compensation, the approximate
amount of compensation, and the duration of the agreement

133
Q

Standard IV(C) Responsibilities of Supervisors

A

Members and Candidates must make reasonable efforts to ensure that anyone subject
to their supervision or authority complies with applicable laws, rules, regulations, and
the Code and Standards.

134
Q

What does Standard IV(C) Responsibilities of Supervisors

A

Standard IV(C) states that members and candidates must promote actions by all
employees under their supervision and authority to comply with applicable laws,
rules, regulations, and firm policies and the Code and Standards.

135
Q

What is a must as a member or candidate

A

Members and candidates acting as supervisors must also have in- depth knowledge
of the Code and Standards so that they can apply this knowledge in discharging their
supervisory responsibilities.

136
Q

What can a member do

A

These members and candidates may delegate supervisory duties to subordinates
who directly oversee the other employees

137
Q

Members or candidates responsibilities

A

member’s or candidate’s responsibilities
under Standard IV(C) include instructing those subordinates to whom supervision is
delegated about methods to promote compliance, including preventing and detecting
violations of laws, rules, regulations, firm policies, and the Code and Standards.

138
Q

If a member or candidates knows the procedures are not being followed are they violating the Standard IV(C)

A

A member or candidate may be in violation of Standard IV(C) if
he or she knows or should know that the procedures designed to promote compliance,
including detecting and preventing violations, are not being followed

139
Q

Recommended Procedures for Compliance

A

Codes of Ethics or Compliance Procedures,
Members and candidates are encouraged to recommend that their employers adopt a
code of ethics. Adoption of a code of ethics is critical to establishing a strong ethical
foundation for investment advisory firms and their employees.

Adequate Compliance Procedures
A supervisor complies with Standard IV(C) by identifying situations in which legal
violations or violations of the Code and Standards are likely to occur and by establishing and enforcing compliance procedures to prevent such violations.

Implementation of Compliance Education and Training
Regular ethics and compliance training, in conjunction with adoption of a code
of ethics, is critical to investment firms seeking to establish a strong culture of integrity and to provide an environment in which employees routinely engage in ethical
conduct in compliance with the law. Training and education assist individuals in both
recognizing areas that are prone to ethical and legal pitfalls and identifying those
circumstances and influences that can impair ethical judgment.

Establish an Appropriate Incentive Structure
Supervisors can reinforce an individual’s natural
desire to “do the right thing” by building a culture of integrity in the workplace

140
Q

Standard V(A) Diligence and Reasonable Basis

A

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

141
Q

Defining Diligence and Reasonable Basis

A

This information and knowledge is
the basis from which members and candidates apply their professional judgment in
taking investment actions and making recommendations.

142
Q

Can a member or candidate rely on secondary o third party research

A

If members and candidates rely on secondary or third- party research, they must
make reasonable and diligent efforts to determine whether such research is sound.

143
Q

What a candidate should do

A

Members and candidates should make reasonable enquiries into the source and
accuracy of all data used in completing their investment analysis and recommendations. T

144
Q

Do members or candidate need to know quantitatively oriented research

A

Members and candidates need to have an understanding of the parameters used
in models and quantitative research that are incorporated into their investment recommendations. Although they are not required to become experts in every technical
aspect of the models, they must understand the assumptions and limitations inherent
in any model and how the results were used in the decision- making process

145
Q

What do members or candidates need to understand as developing quantitatively oriented research

A

Members and candidates need to consider the source and time horizon of the data
used as inputs in financial models.

146
Q

Does Standard V(A) applies to selecting External Advisers and Subadvisers

A

Standard V(A) applies to the level of review necessary in selecting an external adviser
or subadviser to manage a specifically mandated allocation. Members and candidates
must review managers as diligently as they review individual funds and securities

147
Q

What to do if a member or candidate doesnt agrees to the consensus

A

If, however, the member or candidate believes
that the consensus opinion has a reasonable and adequate basis and is independent and
objective, the member or candidate need not decline to be identified with the report.

148
Q

Recommended Procedures for Compliance

A

■ Establish a policy requiring that research reports, credit ratings, and investment
recommendations have a basis that can be substantiated as reasonable and
adequate. An individual employee (a supervisory analyst) or a group of employees (a review committee) should be appointed to review and approve such items
prior to external circulation to determine whether the criteria established in the
policy have been met.
■ Develop detailed, written guidance for analysts (research, investment, or credit),
supervisory analysts, and review committees that establishes the due diligence
procedures for judging whether a particular recommendation has a reasonable
and adequate basis.
■ Develop measurable criteria for assessing the quality of research, the reasonableness and adequacy of the basis for any recommendation or rating, and the
accuracy of recommendations over time. In some cases, firms may consider
implementing compensation arrangements that depend on these measurable
criteria and that are applied consistently to all related analysts.
■ Develop detailed, written guidance that establishes minimum levels of scenario
testing of all computer- based models used in developing, rating, and evaluating
financial instruments. The policy should contain criteria related to the breadth
of the scenarios tested, the accuracy of the output over time, and the analysis of
cash flow sensitivity to inputs.
■ Develop measurable criteria for assessing outside providers, including the
quality of information being provided, the reasonableness and adequacy of the
provider’s collection practices, and the accuracy of the information over time.
The established policy should outline how often the provider’s products are
reviewed.
■ Adopt a standardized set of criteria for evaluating the adequacy of external
advisers. The policy should include how often and on what basis the allocation
of funds to the adviser will be reviewed.

149
Q

Standard V(B) Communication with Clients and Prospective Clients

A

Members and Candidates 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 portfolios and must promptly disclose any changes that might materially affect those processes.

2 Disclose to clients and prospective clients significant limitations and risks associated with the investment process.
3 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.
4 Distinguish between fact and opinion in the presentation of investment analyses
and recommendations.

150
Q

What does Standard V(B) Communication with Clients and Prospective Clients addresses

A

Standard V(B) addresses member and candidate conduct with respect to communicating with clients. Developing and maintaining clear, frequent, and thorough
communication practices is critical to providing high- quality financial services to
clients.

151
Q

What are the different forms of communication

A

communication is not confined to a written report
of the type traditionally generated by an analyst researching a security, company, or
industry. A presentation of information can be made via any means of communication,
including in- person recommendation or description, telephone conversation, media
broadcast, or transmission by computer

152
Q

Can you use social media to communicate business information

A

Members and candidates using any social media service to communicate
business information must be diligent in their efforts to avoid unintended problems
because these services may not be available to all clients.

153
Q

Should a member outline risks and limitations of the analysis

A

Members and candidates must outline to clients and prospective clients significant
risks and limitations of the analysis contained in their investment products or recommendations

154
Q

Report Presentation

A

Report Presentation
Once the analytical process has been completed, the member or candidate who prepares
the report must include those elements that are important to the analysis and conclusions of the report so that the reader can follow and challenge the report’s reasoning.

Investment advice based on quantitative research and analysis must be supported
by readily available reference material and should be applied in a manner consistent
with previously applied methodology. If changes in methodology are made, they
should be highlighted

155
Q

Distinction between Facts and Opinions in Reports

A

Standard V(B) requires that opinion be separated from fact. Violations often occur
when reports fail to separate the past from the future by not indicating that earnings
estimates, changes in the outlook for dividends, or future market price information
are opinions subject to future circumstances.

156
Q

Standard V(C) Record Retention

A

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

157
Q

What is a must

A

Members and candidates must retain records that substantiate the scope of their
research and reasons for their actions or conclusions. The retention requirement
applies to decisions to buy or sell a security as well as reviews undertaken that do
not lead to a change in position

158
Q

Examples of supporting documentation

A

■ personal notes from meetings with the covered company,
■ press releases or presentations issued by the covered company,
■ computer- based model outputs and analyses,
■ computer- based model input parameters,
■ risk analyses of securities’ impacts on a portfolio,
■ selection criteria for external advisers,

159
Q

How can records be mainained

A

Records may be maintained either in hard copy

or electronic form

160
Q

Others media records

A

■ e- mails,
■ text messages,
■ blog posts, and
■ Twitter posts

161
Q

Who are propietaries of the records

A

, records created as part of a member’s or candidate’s professional
activity on behalf of his or her employer are the property of the firm. When a member or candidate leaves a firm to seek other employment, the member or candidate
cannot take the property of the firm,

162
Q

Who are propietaries of the records

A

, records created as part of a member’s or candidate’s professional
activity on behalf of his or her employer are the property of the firm. When a member or candidate leaves a firm to seek other employment, the member or candidate
cannot take the property of the firm,

163
Q

Standard VI(A) Disclosure of Conflicts

A

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

164
Q

Common sources of conflict

A

Common sources for conflict are compensation
structures, especially incentive and bonus structures that provide immediate returns
for members and candidates with little or no consideration of long- term value creation.

165
Q

What classifies as reportable situations

A

Ownership of stocks analyzed or recommended, participation on outside boards,
and financial or other pressures

166
Q

Should you disclose fee arrangementes

A

disclosures should be made to clients regarding fee arrangements,
subadvisory agreements, or other situations involving nonstandard fee structures.

167
Q

Does an cross departamental conflicts exists

A

Yes

168
Q

What are some conflicts as a director

A

First, a conflict may exist
between the duties owed to clients and the duties owed to shareholders of the company. Second, investment personnel who serve as directors may receive the securities
or options to purchase securities of the company as compensation for serving on the
board, which could raise questions about trading actions that might increase the value
of those securities. Third, board service creates the opportunity to receive material
nonpublic information involving the company.

169
Q

Standard VI(B) Priority of Transactions

A

Investment transactions for clients and employers must have priority over investment
transactions in which a Member or Candidate is the beneficial owner.

170
Q

Objective of the standard

A

The objective of the standard is to prevent personal transactions from adversely affecting the interests of clients or employers

171
Q

Does having the same investment positions with clients create conflict of interest

A

A member or
candidate having the same investment positions or being co- invested with clients
does not always create a conflict. Some clients in certain investment situations require
members or candidates to have aligned interests

172
Q

Standards for Nonpublic Information

A

Standard VI(B) covers the activities of members and candidates who have knowledge
of pending transactions that may be made on behalf of their clients or employers,
who have access to nonpublic information during the normal preparation of research
recommendations, or who take investment actions

173
Q

Can a member or candidate be in an oversuscribed IPO

A

No

174
Q

Recommended Procedures for Compliance

A

Limited participation in equity IPOs.Need clearence

Restrictions on private placements: Strict limits should be placed on investment
personnel acquiring securities in private placements, and appropriate supervisory(Venture Capital)

Establish blackout/restricted periods: Investment personnel involved in the
investment decision- making process should establish blackout periods prior to
trades for clients so that managers cannot take advantage of their knowledge

Reporting requirements: Supervisors should establish reporting procedures
for investment personnel, including disclosure of personal holdings/beneficial
ownerships, confirmations of trades to the firm and the employee, and preclearance procedures.

175
Q

Standard VI(C) Referral Fees

A

Members and Candidates must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from or paid
to others for the recommendation of products or services

176
Q

What does Standard VI(C) states

A 
Standard VI(C) states the responsibility of members and candidates to inform their 
employer, clients, and prospective clients of any benefit received for referrals of customers and clients
177
Q

Do you need to disclose the nature of the profit

A

Yes,flat fee or percentage basis, one- time or
continuing benefit, based on performance, benefit in the form of provision of research
or other noncash benefit—together with the estimated dollar value. Consideration
includes all fees, whether paid in cash, in soft dollars, or in kind.

178
Q 
Standard VII(A) Conduct as Participants in CFA Institute 
Programs
A

Members and Candidates must not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation or the integrity, validity, or
security of CFA Institute programs.

179
Q 
Standard VII(A) Conduct as Participants in CFA Institute 
Programs
A

Members and Candidates must not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation or the integrity, validity, or
security of CFA Institute programs.

180
Q

Conduct covered

A

■ giving or receiving assistance (cheating) on any CFA Institute examinations;
■ violating the rules, regulations, and testing policies of CFA Institute programs;
■ providing confidential program or exam information to candidates or the
public;
■ disregarding or attempting to circumvent security measures established for any
CFA Institute examinations;
■ improperly using an association with CFA Institute to further personal or professional goals; and
■ misrepresenting information on the Professional Conduct Statement or in the
CFA Institute Continuing Education Program.

181
Q

Does the CFA actively policies

A

Yes,CFA Institute actively polices blogs, forums, and related social networking groups for information considered confidential

182
Q

Does the standard VII(A) covers opinions

A

Standard VII(A) does not cover expressing opinions regarding CFA Institute, the
CFA Program, or other CFA Institute programs. Members and candidates are free
to disagree and express their disagreement with CFA Institute on its policies, its
procedures, or any advocacy positions taken by the organization.

183
Q 
Standard VII(B) Reference to CFA Institute, the CFA Designation, 
and the CFA Program
A

When referring to CFA Institute, CFA Institute membership, the CFA designation, or
candidacy in the CFA Program, Members and Candidates must not misrepresent or
exaggerate the meaning or implications of membership in CFA Institute, holding the
CFA designation, or candidacy in the CFA Program

184
Q

Intention of Standard VII(B)

A

Individuals must not exaggerate the
meaning or implications of membership in CFA Institute, holding the CFA designation,
or candidacy in the CFA Program

185
Q

Does Standard VI(B) applies to any form of communication

A

Standard VII(B) applies to any form of communication, including but not limited
to communications made in electronic or written form (such as on firm letterhead,
business cards, professional biographies, directory listings, printed advertising, firm
brochures, or personal resumes) and oral statements made to the public, clients, or
prospects

186
Q

Who does it refers when mentioning CFA Institute member

A

refers to “regular” and “affiliate” members of CFA
Institute who have met the membership requirements as defined in the CFA Institute
Bylaws.

187
Q

What requierements do you need to satisfy your membership

A

■ remit annually to CFA Institute a completed Professional Conduct Statement,
which renews the commitment to abide by the requirements of the Code and
Standards and the CFA Institute Professional Conduct Program, and
■ pay applicable CFA Institute membership dues on an annual basis.

188
Q

Can you state you were a charterholder in the past

A

Yes

189
Q

How a person is considered a candidate

A

■ the person’s application for registration in the CFA Program has been accepted
by CFA Institute, as evidenced by issuance of a notice of acceptance, and the
person is enrolled to sit for a specified examination or
■ the registered person has sat for a specified examination but exam results have
not yet been received.

190
Q

If you are registered but decline to sit to the exam are you an active candidate

A

No

191
Q

Can you state you passed each level of the exam in consecutive years

A

Yes

192
Q

Can a member have an retired status

A

Yes

193
Q

What are some misleading practices

A

■ Representative Accounts: Selecting a top- performing portfolio to represent the
firm’s overall investment results for a specific mandate.
■ Survivorship Bias: Presenting an “average” performance history that excludes
portfolios whose poor performance was weak enough to result in termination of the firm
■ Varying Time Periods: Presenting performance for a selected time period
during which the mandate produced excellent returns or out- performed
its benchmark—making comparison with other firms’ results difficult or impossible.

194
Q

What is the GIPS

A

The GIPS standards are a practitioner- driven set of ethical principles that establish
a standardized, industry- wide approach for investment firms to follow in calculating
and presenting their historical investment results to prospective clients.

195
Q

Who can claim compliance

A

any investment management firm may choose to comply with the GIPS standards. Complying with the GIPS standards is voluntary but only investment management firms that actually manage assets can
claim compliance with the Standards.

196
Q

Who cant claim compliance

A

Plan sponsors and consultants cannot make
a claim of compliance unless they actually manage assets for which they are making
a claim of compliance.

197
Q

Options to claim compliance

A

A firm has only two options with regard to compliance with
the GIPS standards: fully comply with all requirements of the GIPS standards and
claim compliance through the use of the GIPS Compliance Statement; or not comply
with all requirements of the GIPS standards and not claim compliance with, or make
any reference to, the GIPS standards.

198
Q

WHO BENEFITS FROM COMPLIANCE?

A

investment management firms and prospective clients.

199
Q

Composites

A

A composite is an aggregation of one or more portfolios managed according to a similar
investment mandate, objective, or strategy. A composite must include all actual, feepaying, discretionary portfolios managed in accordance with the same investment
mandate, objective, or strategy.

200
Q

Can verification be respect to specific composites

A

No, It must be about the entire firm

201
Q

Who can perform verification tests

A

Verification must be performed by an independent third party. A firm cannot perform its own verification.

202
Q

Types of verification tests

A

■ whether the investment firm has complied with all the composite construction
requirements of the GIPS standards on a firm- wide basis, and
■ whether the firm’s policies and procedures are designed to calculate and present
performance in compliance with the GIPS standards.

203
Q

What is the structure of the GIPS Standards

A

The provisions within the 2010 edition of the GIPS standards are divided into nine sections: Fundamentals of Compliance, Input Data, Calculation Methodology, Composite
Construction, Disclosure, Presentation and Reporting, Real Estate, Private Equity, and
Wrap Fee/Separately Managed Account (SMA) Portfolios.

204
Q

Why is a GIPS needed

A

Standardized Investment Performance,Global Passport ,Investor Confidence

205
Q

Mention some goals of the GIPS Executive Committee

A

■ To establish investment industry best practices for calculating and presenting
investment performance that promote investor interests and instill investor
confidence;
■ To obtain worldwide acceptance of a single standard for the calculation and
presentation of investment performance based on the principles of fair representation and full disclosure;
■ To promote the use of accurate and consistent investment performance data;
■ To encourage fair, global competition among investment firms without creating
barriers to entry; and
■ To foster the notion of industry “self- regulation” on a global basis.

206
Q

Whats the minimum of years of performance a firm must present to comply with GIPS

A

■ A firm is required to initially present, at a minimum, five years of annual investment performance that is compliant with the GIPS standards

207
Q

What if the firm has less than five years of existence

A

If the firm or
the composite has been in existence less than five years, the firm must present
performance since the firm’s inception or the composite inception date.

208
Q

What to do after the firm presents historical performance data

A

the firm must present an additional year of performance each year, building up to a minimum of 10 years of GIPS- compliant performance

209
Q

Can firms link non GIPS compliance data

A

Firms may link non- GIPS- compliant performance to their GIPS- compliant
performance provided that only GIPS- compliant performance is presented
for periods after 1 January 2000 and the firm discloses the periods of non-compliance

210
Q

What is it that firms must not do

A

Firms must not link non- GIPS- compliant performance for periods
beginning on or after 1 January 2000 to their GIPS- compliant performance

211
Q

What is the effective date for the GIPS standards

A

The effective date for the 2010 edition of the GIPS standards is 1 January 2011.
Compliant presentations that include performance for periods that begin on or after
1 January 2011 must be prepared in accordance with the 2010 edition of the GIPS
standards.

212
Q

Fundamentals of Compliance

A

Two important issues that a firm must consider when becoming compliant with
the GIPS standards are the definition of the firm and the firm’s definition of
discretion. The definition of the firm is the foundation for firm- wide compliance
and creates defined boundaries whereby total firm assets can be determined.
The firm’s definition of discretion establishes criteria to judge which portfolios
must be included in a composite and is based on the firm’s ability to implement
its investment strategy.

213
Q

Input Data

A

Consistency of input data used to calculate performance is critical
to effective compliance with the GIPS standards and establishes the foundation
for full, fair, and comparable investment performance presentations. For periods
beginning on or after 1 January 2011, all portfolios must be valued in accordance with the definition of fair value and the GIPS Valuation Principles.

214
Q

Calculation Methodology

A

The GIPS standards mandate the use of certain calculation

methodologies to facilitate comparability.

215
Q

Composite Construction

A

The composite return is the asset- weighted average of the performance
of all portfolios in the composite

216
Q

Disclosure

A

To comply with the GIPS standards, firms must disclose certain
information in all compliant presentations regarding their performance and
the policies adopted by the firm. One of the essential disclosures for every firm is the claim of compliance

217
Q

Presentation and Reporting

A

the
firm must incorporate this information in presentations based on the requirements in the GIPS standards for presenting investment performance. No finite
set of requirements can cover all potential situations or anticipate future developments in investment industry structure, technology, products, or practices.

218
Q

Wrap Fee/Separately Managed Account (SMA) Portfolios

A

..

219
Q

Can firms present false or misleading information

A

Firms must not present performance or performance- related information
that is false or misleading

220
Q

What statements are prohibited

A

Statements referring to the calculation methodology as being “in accordance,”
“in compliance,” or “consistent” with the Global Investment Performance
Standards, or similar statements, are prohibited.

221
Q

What statement is prohibited using in a single client portfolio

A

“calculated in accordance with the Global Investment Performance
Standards”

222
Q

Can firms choose to whom they present a compliant presentation

A

No,Firms must make every reasonable effort to provide a compliant presentation to all prospective clients. Firms must not choose to whom they
present a compliant presentation. As long as a prospective client has
received a compliant presentation within the previous 12 months, the
firm has met this requirement

223
Q

Can a client request a list of composite descriptions

A

Yes,Firms must provide a complete list of composite descriptions to any
prospective client that makes such a request. Firms must include terminated composites on the firm’s list of composite descriptions for at
least five years after the composite termination date.

224
Q

How a firm must be defined to clients or prospective clients

A

distinct business entity

225
Q

Does total firm assets must include assets assigned to a sub advisor

A

YES

226
Q

Can changes in the firms organization change historical composite performance

A

No

227
Q

Fundamentals of Compliance—Recommendations

A

0.B.1 Firms should comply with the recommendations of the GIPS standards,
including recommendations in any updates
0.B.2 Firms should be verified.
0.B.3 Firms should adopt the broadest, most meaningful definition of the firm.
The scope of this definition should include all geographical (country, regional,
etc.) offices operating under the same brand name regardless of the actual
name of the individual investment management company.
0.B.4 Firms should provide to each existing client, on an annual basis, a compliant presentation of the composite in which the client’s portfolio
is included

228
Q

Discretionary Fund

A

Discretionary Fund Management is when an investment professional known as a Discretionary Fund Manager (DFM) builds and manages a portfolio of investments on your behalf.

CFA (10 decks)

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