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Ethics > Ethics and Professional Standards > Flashcards

Ethics and Professional Standards Flashcards

1
Q

What is the role of the CFA Institute’s Disciplinary Review Committe?

A

Overall responsibility for the Professional Conduct Program and enforcement of the Code and Standards

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2
Q

What three circumstances can prompt an inquiry from the CFA’s Designated Officer?

A
  1. Self-disclosure by a member or candidate,
  2. Written complaints, and
  3. evidence of misconduct
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3
Q

What three courses of disciplinary action may a Designated Officer take?

A
  1. Decide no disciplinary sanctions are appropriate,
  2. Issue a cautionary letter
  3. Discipline the member or candidate.
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4
Q

What are the seven ethical responsibilities of a CFA member or candidate?

A
  1. Professionalism.
  2. Integrity of Capital Markets.
  3. Duties to Clients.
  4. Duties to Employers.
  5. Investment Analysis, Recommendations, and Action.
  6. Conflicts of Interest.
  7. Responsibilities as a CFA Member or Candidate.
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5
Q

What are the four qualities of professionalism as outlined in the Code of Standards?

A
  1. Knowledge and adherence to the Law,
  2. Independence and Objectivity,
  3. No Misrepresentation, and
  4. No Misconduct.
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6
Q

What are the five duties to clients as outlined in the CFA’s code of ethics?

A
  1. Loyalty, Prudence, and Care,
  2. Fair Dealing,
  3. Suitability,
  4. Fair/Accurate Performance Presentation
  5. Preservation of Confidentiality.
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7
Q

What are the three duties to employers as outlined in the CFA’s code of ethics?

A
  1. Loyalty,
  2. Additional compensation(gifts, benefits, etc) that might create a conflict of interest with employers cannot be accepted UNLESS there is written consent.
  3. Make reasonable efforts to detect/prevent violations of applicable laws, rules, etc. by anyone under their supervision.
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8
Q

What are the three requirements of proper investment analysis as outlined in the CFA’s code of ethics?

A
  1. Diligence and Reasonable Basis,
  2. Communication with Clients and Prospective Clients, and
  3. Record Retention.
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9
Q

What are three conflict of interest areas for a CFA?

A
  1. Disclosure of Conflicts,
  2. Priority of Transactions, and
  3. Referral Fees.
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10
Q

When there are two or more conflicting laws, which should the CFA follow?

A

The strictest law, rule or regulation.

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11
Q

What is the CFA Institute’s viewpoint on gifts?

A

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. (Modest gifts are permitted though)

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12
Q

What gifts must be disclosed to a member’s employer?

A

ALL! Gifts must be disclosed to the member’s employer in ANY case.

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13
Q

What two qualities make information material?

A
  1. If its disclosure would impact the price of a security

2. If reasonable investors would want the information before making an investment decision

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14
Q

When does nonpublic information become public?

A

When it has been made available to the marketplace.

*An analyst conference call is not public disclosure

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15
Q

What is the mosaic theory?

A

There is no violation when a perceptive analyst reaches an investment conclusion about a corporate action or event through an analysis of public information together with items of nonmaterial nonpublic information.

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16
Q

What are the three duties of a member in a client advisory relationship?

A
  1. Make a reasonable inquiry into a client’s or prospective clients’ 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.
  2. 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.
  3. Judge the suitability of investments in the context of the client’s total portfolio.
17
Q

What is the responsibility of members managing a portfolio with specific objectives?

A

Must make only investment recommendations or take investment actions that are consistent with the stated objectives and constraints of the portfolio.

18
Q

In what three instances can a member disclose information about current, former, and prospective clients?

A
  1. The information concerns illegal activities.
  2. Disclosure is required by law.
  3. The client or prospective client permits disclosure of the information.
19
Q

Is independent practice(for compensation) by a member allowed if they are currently employed?

A

Yes, if a notification is provided to the employer fully describing all aspects of the services.

20
Q

What is the minimum holding period for work papers?

A

The CFA Institute suggests retaining records for no less than 7-years.

21
Q

Who is a beneficial owner?

A
  1. A person who enjoys the benefits of ownership even though title is in another name.
  2. Any individual(s) that, either directly or indirectly, has the power to vote or influence the transaction decisions regarding a specific security.
22
Q

What are two things that must be done annually to retain CFA membership?

A
  1. Sign PCS, and

2. Pay CFA Institute dues.

23
Q

What does GIPS stand for?

A

Global Investment Performance Standards

24
Q

What is a representative account?

A

Misleading advertisement tactic. Showing a top-performing portfolio as representative of firm’s results.

25
Q

What is survivorship bias?

A

Misleading advertisement tactic. Excluding weak performance accounts that have been terminated.

26
Q

What are the three verification requirements of GIPS?

A
  1. Verification MUST be performed by a third party on a firm-wide basis.
  2. The firm has complied with all GIPS requirements for composite construction on a firm-wide basis,
  3. The firm’s processes/procedures are established to present performance in accordance with the calculation methodology, data requirements, and format required by GIPS.
27
Q

What are the six components of the “Code of Ethics”

A
  1. Act with integrity, competence, diligence, ethical manner, etc. with the public, colleagues, employees, employers, etc.
  2. Place integrity of the investment profession above your own personal interests
  3. Use reasonable care & independence in investment analysis and other professional activities.
  4. Practice and encourage others to practice in an ethical manner
  5. Promote the integrity and uphold rules governing the capital markets
  6. Maintain/improve professional competence
28
Q

What are the two subsections of the “Code of Standards” rules on integrity of Capital Markets?

A
  1. Members cannot act on material non-public information

2. Members must not engage in acts that intentionally manipulate the market.

29
Q

In what three instances may a member disclose confidential client information?

A
  1. The information concerns illegal activities
  2. Disclosure is required by law
  3. Client permits disclosure
30
Q

What are the nine major sections of the GIPS standards?

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

Ethics (6 decks)

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