Ethics

Question 1

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

Answer 1

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

Question 2

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

Answer 2

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

Question 3

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

Answer 3

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

Question 4

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

Answer 4

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

Question 5

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

Answer 5

Yes if the IPO is not oversubscribed

Question 6

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

Answer 6

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.

Question 7

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

Answer 7

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

Question 8

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

Answer 8

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

Question 9

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

Answer 9

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

Question 10

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

Answer 10

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

Question 11

Should terminated accounts be used in historical performance analysis?

Answer 11

Yes

Question 12

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

Answer 12

The plan participants and the beneficiaries

Question 13

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?

Answer 13

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

Question 14

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

Answer 14

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

Question 15

What are the rules around referral fees?

Answer 15

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

Question 16

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

Answer 16

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

Question 17

What are the rules around accepting gifts for prior service?

Answer 17

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

Question 18

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

Answer 18

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

Question 19

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

Answer 19

Yes

Question 20

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

Answer 20

Yes

Question 21

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

Answer 21

No

Question 22

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

Answer 22

At least annually

Question 23

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

Answer 23

Yes for non-material votes they can

Question 24

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

Answer 24

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

Question 25

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

Answer 25

The clients order must always take priority over your own

Question 26

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

Answer 26

No

Question 27

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

Answer 27

No, not if it is from a reputable source

Question 28

Do the CFA institute impose fines for unethical behaviour?

Answer 28

No

Question 29

Should all conversations and recommendations with clients be documented?

Answer 29

Yes

Question 30

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

Answer 30

Yes

Question 31

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

Answer 31

When it differs to the IPS

Question 32

What makes a piece of insider information material?

Answer 32

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

Question 33

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

Answer 33

Yes - must include both

Question 34

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

Answer 34

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

Question 35

Do professional organisations need to enforce legal and ethical compliance?

Answer 35

Just ethical compliance

Question 36

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

Answer 36

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

Question 37

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

Answer 37

Yes but you can only go back to 2000

Question 38

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

Answer 38

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

Question 39

What are the 9 sections of the GIPS standards?

Answer 39

8. Wrap Fee/Separately Managed Account (SMA) Portfolios
9. Private Equity
10. Real Estate
11. Presentation and Reporting
12. Disclosures
13. Composite Construction
14. Calculation Methodology
15. Input Data
16. Fundamentals of Compliance