Ethics Flashcards
What is are soft dollars/commissions and what is the CFA policy on this?
Conflicts may arise when an investment manager uses client brokerage to purchase research services, a practice commonly called “soft dollars” or “soft commissions.”
A member or candidate who pays a higher brokerage commission than he or she would normally pay to allow for the purchase of goods or services, without corresponding benefit to the client, violates the duty of loyalty to the client.
When should client suitability for an investment be reviewed?
Client suitability for an investment must be reviewed prior to allocation, not afterward.
If a client has been misallocated shares, what is the procedure?
The account should be corrected, and clients who were incorrectly allocated shares must be paid for the use of their cash
What is the definition of a transaction cost under GIPS?
The GIPS Glossary defines transaction costs as “the costs of buying or selling investments” and states, “These costs typically take the form of brokerage commissions, exchange fees and/or taxes, and/or bid–offer spreads from either internal or external brokers. Custodial fees charged per transaction should be considered custody fees and not transaction costs.”
What is the GIPS Modified Dietz method?
(Closing account value - Opening account value - cash flow) / (Opening account value + weighted cash flow)
If someone is involved in dishonest conduct outside of work, is this a violation?
Yes this violated Standard I(D) on professional misconduct in the CFA Institute Standards of Professional Conduct?
Can an account be managed without an understand of risk tolerance if the client has requested?
Yes, as long as reasonable inquiry into investment experience, risk and return objectives, and financial constraints, as the Standard requires.
What is the difference between negative screening, positive screening and thematic screening?
Negative screening (i.e., exclusionary screening) excludes companies or sectors that do not meet client standards. Positive screening (i.e., best-in-class screening) seeks to uncover companies or sectors that rank most favorably with clients. Thematic investing screens equities based on a specific theme.
