Ethics

Question 1

I(A) Professionalism - Knowledge of the Law

Answer 1

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.

Question 2

I(B) Professionalism - Independence and Objectivity

Answer 2

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.

Question 3

I(C) Professionalism - Misrepresentation

Answer 3

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

Question 4

I(D) Professionalism - Misconduct

Answer 4

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.

Question 5

II(A) Integrity of Capital Markets - Material Nonpublic Information

Answer 5

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.

Question 6

II(B) Integrity of Capital Markets - Market Manipulation

Answer 6

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

Question 7

III(A) Duties to Clients - Loyalty, Prudence, and Care

Answer 7

Members 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.

Question 8

III(B) Duties to Clients - Fair Dealing

Answer 8

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.

Question 9

III(C) Duties to Clients - Suitability

Answer 9

1. When Members and Candidates are in an advisory relationship with a client, they must:
   - 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.
   - 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.
   - 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.

Question 10

III(D) Duties to Clients - Performance Presentation

Answer 10

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

Question 11

III(E) Duties to Clients - Preservation of Confidentiality

Answer 11

Members and Candidates must keep information about current, former, and prospective clients confidential unless:

• The information concerns illegal activities on the part of the client;
• Disclosure is required by law; or
• The client or prospective client permits disclosure of the information.

Question 12

IV(A) Duties to Employers - Loyalty

Answer 12

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.

Question 13

IV(B) Duties to Employers - Additional Compensation Arrangements

Answer 13

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.

Question 14

IV(C) Duties to Employers - Responsibilities of Supervisors

Answer 14

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.

Question 15

V(A) Investment Analysis, Recommendations, and Actions Standard - Diligence and Reasonable Basis

Answer 15

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.

Question 16

V(B) Investment Analysis, Recommendations, and Actions - Communication with Clients and Prospective Clients

Answer 16

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.

Question 17

V(C) Investment Analysis, Recommendations, and Actions - Record Retention

Answer 17

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.

Question 18

VI(A) Conflicts of Interest - Disclosure of Conflicts

Answer 18

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.

Question 19

VI(B) Conflicts of Interest - Priority of Transactions

Answer 19

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

Question 20

VI(C) Conflicts of Interest - Referral Fees

Answer 20

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.

Question 21

VII(A) Responsibilities as a CFA Institute Member or CFA Candidate - Conduct as Participants in CFA Institute Programs

Answer 21

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.

Question 22

VII(B) Responsibilities as a CFA Institute Member or CFA Candidate - Reference to CFA Institute, the CFA Designation, and the CFA Program

Answer 22

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.