Ethics Flashcards
What must a CFA candidate not do when referring to their CFA charter status in marketing materials?
They must not refer to themselves as if they will qualify with the charter in a few years contingent upon completing level III etc.
Under CFA standards can a member use insider information when making investment decisions?
The analyst can only trade on NONMATERIAL nonpublic information, they should keep documentation of any analysis conducted
What must an analyst do if they obtain material non-public information?
They should not act on it. Ie they should not share it with another individual or trade on it
Can a CFA member make an investment decision on the back of a hunch/ recommendation from a friend etc.?
No CFA members must conduct a comprehensive set of due diligence and thoroughness to be able to evidence their recommendations if required
According to the standards, can an individual participating in the distribution of an IPO participate in the IPO themselves?
Yes if the IPO is not oversubscribed
Can an employee act for client independently of their employee / employment?
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.
What does the standard V(C) Record Retention require from an analyst?
It requires that all data and analysis contributing towards an investment are kept on file
When analysts send out their investment ideas to prospective clients, do they need to include the underlying data and analysis?
No - can be as simple as a buy/sell recommendation
Is there a requirement to only send investment ideas to client to whom it may be suitable?
No - it is okay to send out both conservative and aggressive ideas to any type of client - this is not moderated by the standards
What should an analyst do if the firms compliance function is sub-standard?
The analyst should to decline to take on any supervisory positions until an adequate compliance system is adopted
Should terminated accounts be used in historical performance analysis?
Yes
Who is the fiduciary duty owed to in relation to a pension plan?
The plan participants and the beneficiaries
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?
The broker should inform them of the change in recommendation before accepting the order
How many years of GIPS compliance data must a firm demonstrate to be regarded as a GIPS compliant firm?
5 years or since inception if less than 5 years and still compliant
What are the rules around referral fees?
The analyst must disclose any referral fees to his employer and the prospective client
What can a member do when faced with a disciplinary sanction?
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
What are the rules around accepting gifts for prior service?
For a gift from a client in appreciation of past service or performance, informing his supervisor verbally is sufficient
Does drink driving violate the CFA standards around knowledge of the law and / or misconduct?
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
Must an analyst pay for their own travel and transportation costs if visiting a client?
Yes
Must analysts put client needs before their employers and their own?
Yes
Is recommending to sell a stock you have recommended as a “hold” a violation of ethics?
No
How often do the standards say an IPS must be updated?
At least annually
Are investment managers allowed to vote on proxies on the clients behalf?
Yes for non-material votes they can
Are analysts allowed to solicit clients they had at an old firm once they join their new firm?
Yes as long as it doesn’t violate a non compete
What are the rules around placing your personal trade order before placing the clients order?
The clients order must always take priority over your own
Is it an ethical requirement that an analyst must put work before personal life?
No
Must analysts always cite the source of their data for their reports?
No, not if it is from a reputable source
Do the CFA institute impose fines for unethical behaviour?
No
Should all conversations and recommendations with clients be documented?
Yes
Should investment managers notify the client of any material changes to the portfolio composition?
Yes