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CFA Exam Level 1 > Ethics > Flashcards

Ethics Flashcards

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CFA flashcards
1
Q

What must a CFA candidate not do when referring to their CFA charter status in marketing materials?

A

They must not refer to themselves as if they will qualify with the charter in a few years contingent upon completing level III etc.

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2
Q

Under CFA standards can a member use insider information when making investment decisions?

A

The analyst can only trade on NONMATERIAL nonpublic information, they should keep documentation of any analysis conducted

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3
Q

What must an analyst do if they obtain material non-public information?

A

They should not act on it. Ie they should not share it with another individual or trade on it

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4
Q

Can a CFA member make an investment decision on the back of a hunch/ recommendation from a friend etc.?

A

No CFA members must conduct a comprehensive set of due diligence and thoroughness to be able to evidence their recommendations if required

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5
Q

According to the standards, can an individual participating in the distribution of an IPO participate in the IPO themselves?

A

Yes if the IPO is not oversubscribed

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6
Q

Can an employee act for client independently of their employee / employment?

A

They can, however they must receive written approval from their employer first and outline to them the exact scope of services, fee and time requirement.

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7
Q

What does the standard V(C) Record Retention require from an analyst?

A

It requires that all data and analysis contributing towards an investment are kept on file

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8
Q

When analysts send out their investment ideas to prospective clients, do they need to include the underlying data and analysis?

A

No - can be as simple as a buy/sell recommendation

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9
Q

Is there a requirement to only send investment ideas to client to whom it may be suitable?

A

No - it is okay to send out both conservative and aggressive ideas to any type of client - this is not moderated by the standards

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10
Q

What should an analyst do if the firms compliance function is sub-standard?

A

The analyst should to decline to take on any supervisory positions until an adequate compliance system is adopted

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11
Q

Should terminated accounts be used in historical performance analysis?

A

Yes

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12
Q

Who is the fiduciary duty owed to in relation to a pension plan?

A

The plan participants and the beneficiaries

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13
Q

What should a broker at a firm tell a client who wants to buy a share which they have recently downgrades from buy to hold?

A

The broker should inform them of the change in recommendation before accepting the order

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14
Q

How many years of GIPS compliance data must a firm demonstrate to be regarded as a GIPS compliant firm?

A

5 years or since inception if less than 5 years and still compliant

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15
Q

What are the rules around referral fees?

A

The analyst must disclose any referral fees to his employer and the prospective client

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16
Q

What can a member do when faced with a disciplinary sanction?

A

Members can accept or reject a disciplinary sanction proposed by the Professional Conduct Program staff. If the member rejects the sanction, the matter is referred to a hearing before a disciplinary review panel of CFA Institute member

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17
Q

What are the rules around accepting gifts for prior service?

A

For a gift from a client in appreciation of past service or performance, informing his supervisor verbally is sufficient

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18
Q

Does drink driving violate the CFA standards around knowledge of the law and / or misconduct?

A

No, the analysts behaviour is not unfortunate but as long as it hasn’t violated his work professional integrity, judgement or reputation it is not a violation

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19
Q

Must an analyst pay for their own travel and transportation costs if visiting a client?

A

Yes

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20
Q

Must analysts put client needs before their employers and their own?

A

Yes

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21
Q

Is recommending to sell a stock you have recommended as a “hold” a violation of ethics?

A

No

22
Q

How often do the standards say an IPS must be updated?

A

At least annually

23
Q

Are investment managers allowed to vote on proxies on the clients behalf?

A

Yes for non-material votes they can

24
Q

Are analysts allowed to solicit clients they had at an old firm once they join their new firm?

A

Yes as long as it doesn’t violate a non compete

25
Q

What are the rules around placing your personal trade order before placing the clients order?

A

The clients order must always take priority over your own

26
Q

Is it an ethical requirement that an analyst must put work before personal life?

A

No

27
Q

Must analysts always cite the source of their data for their reports?

A

No, not if it is from a reputable source

28
Q

Do the CFA institute impose fines for unethical behaviour?

A

No

29
Q

Should all conversations and recommendations with clients be documented?

A

Yes

30
Q

Should investment managers notify the client of any material changes to the portfolio composition?

A

Yes

31
Q

In what case must the analyst notify the client of a change in minimal trade?

A

When it differs to the IPS

32
Q

What makes a piece of insider information material?

A

The source of the information and the ambiguity of the price change

33
Q

Must total assets for GIPS include fee paying and discretionary accounts?

A

Yes - must include both

34
Q

Is it okay for a investment manager to replicate a successful clients trades?

A

Yes as long as the IM still prioritises the clients trades over their own

35
Q

Do professional organisations need to enforce legal and ethical compliance?

A

Just ethical compliance

36
Q

What should an IM follow the law or the codes of standard?

A

law where they reside, the law where they do business, or the Code and Standards.

37
Q

Can you present non-GIPS compliant data to a client on top of the 5 years worth of compliance?

A

Yes but you can only go back to 2000

38
Q

Can an analyst begin to prepare the operations for a new business once they have resigned from their existing employer?

A

Yes as long as they are not directly conflicting with the operations of their previous employer at that time

39
Q

What are the 9 sections of the GIPS standards?

A
  1. Wrap Fee/Separately Managed Account (SMA) Portfolios
  2. Private Equity
  3. Real Estate
  4. Presentation and Reporting
  5. Disclosures
  6. Composite Construction
  7. Calculation Methodology
  8. Input Data
  9. Fundamentals of Compliance
40
Q

Describe the Code of Ethics members of the CFA Institute must subscribe to.

A

Act with integrity, competence, diligence, and respect.

Place the integrity of the investment profession and the interests of clients above their own.

Use reasonable care and exercise independent professional judgment.

Practice and encourage others to practice in a professional and ethical manner.

Promote the integrity and viability of the global capital markets for the ultimate benefit of society.

Maintain and improve their professional competence.

41
Q

Name the 7 areas of the Standards of Professional Conduct.

A

I. Professionalism

II. Integrity of Capital Markets

III. Duties to Clients

IV. Duties to Employers

V. Investment Analysis, Recommendations, and Actions

VI. Conflicts of Interest

VII. Responsibilities as a CFA Institute Member or CFA Candidate

42
Q

Name the specific practical guidelines for asset managers provided in the Asset Manager Code.

A

Loyalty to clients

The investment process

Trading

Compliance

Performance evaluation

Disclosure

43
Q

List the areas of Professionalism (I) that are part of the CFA Institute Standards of Professional Conduct.

A

A. Knowledge of the Law

B. Independence and Objectivity

C. Misrepresentation

D. Misconduct

44
Q

List the areas of Integrity of Capital Markets (II) that are part of the CFA Institute Standards of Professional Conduct.

A

A. Material Nonpublic Information

B. Market Manipulation

45
Q

List the areas of Duties to Clients (III) that are part of the CFA Institute Standards of Professional Conduct.

A

A. Loyalty, Prudence, and Care

B. Fair Dealing

C. Suitability

D. Performance Presentation

E. Preservation of Confidentiality

46
Q

List the areas of Duties to Employers (IV) that are part of the CFA Institute Standards of Professional Conduct.

A

A. Loyalty

B. Additional Compensation Arrangements

C. Responsibilities of Supervisors

47
Q

List the areas of Investment Analysis, Recommendations, and Actions (V) that are part of the CFA Institute Standards of Professional Conduct.

A

A. Diligence and Reasonable Basis

B. Communication with Clients and Prospective Clients

C. Record Retention

48
Q

List the areas of Conflicts of Interest (VI) that are part of the CFA Institute Standards of Professional Conduct.

A

A. Disclosure of Conflicts

B. Priority of Transactions

C. Referral Fees

49
Q

List the areas of Responsibilities as a CFA Institute Member or CFA Candidate (VII) that are part of the CFA Institute Standards of Professional Conduct.

A

A. Conduct as members and candidates in the CFA program

B. Reference to CFA Institute, the CFA Designation, and the CFA Program

50
Q

List the 3 possible outcomes of a Professional Conduct inquiry.

A

Take no disciplinary action.

Issue a cautionary letter.

Continue proceedings to discipline the member or candidate.

51
Q

Sanctions imposed by CFA Institute may have what significant consequences?

A

Public censure

Suspension of membership and use of the CFA designation

Revocation of the CFA charter

52
Q

CFAI Enforcement

A

The CFA Institute Board of Governors 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.

CFA Exam Level 1 (10 decks)

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