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CFA Level 1 > Ethics & Professional Standards > Flashcards

Ethics & Professional Standards Flashcards

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CFA flashcards
1
Q

What is Standard 1?

A

Professionalism

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2
Q

Part A of Standard 1?

A

Knowledge of the law: members must understand and comply with all laws.

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3
Q

What should you do in the case of conflict of laws for Standard 1 Part A?

A

comply with the stricter law

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4
Q

what if you participate where others have violated?

A

you still bear he consequences and will bear the burden of the law. If a member thinks that client/employer activities are illegal, member must separate from this activity or stop this behaviour

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5
Q

Part B of Standard 1?

A

Independence and Objectivity

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6
Q

What does independence and objectivity mean?

A

anything that comes from your client or employer that makes you less objective and independent: gifts, commissions, bonuses, transportation reimbursement

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7
Q

part c of standard 1?

A

misrepresentation

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8
Q

what does misrepresentation mean?

A

any untrue statement or omission of a fact that is false or misleading. Don’t guarantee any specific return on volatile investments. Avoid plagiarism. The firm is allowed to use the research conducted by analysts previously employed by the firm.

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9
Q

what is part D of section 1?

A

misconduct

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10
Q

what does misconduct mean?

A

you mustn’t engage in any professional conduct that involves dishonesty, fraud or deceit

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11
Q

can a legal conduct still damage competence and trustworthiness?

A

yes, example is abusing alcohol during business hours, personal bankruptcy, lack of necessary due diligence

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12
Q

what is standard 2 of professional conduct?

A

integrity of capital markets

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13
Q

what is part A of standard 2?

A

material non public information

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14
Q

what does material non public info entail?

A

if you use any material non public information to your advantage

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15
Q

What does the material information include?

A

earnings, mergers, change in assets, innovative products, new licenses, changes in management, change in customer info, change in audit, bankrputcy or a legal dispute. Basically any info that has not been made known/disseminated yet.

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16
Q

what should you do under mosaic theory?

A

you should save the info you have or find and document it

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17
Q

what is a firewall element?

A

it’s an information barrier that prevents communication of material non public info. This can include review of employees trading, documentation of procedures limiting flow of info between the departments. Physical separation of departments, prevention of personnel overlap, records maintenance, communication to employees

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18
Q

what is part b of standard 2?

A

market manipulation

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19
Q

what is market manipulation?

A

you shouldn’t engage in practices that influence or artificially inflate trading volume. This can include dissemination of misleading or false info and doing transactions that mislead the market.

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20
Q

what is standard 3?

A

duties to clients

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21
Q

what is part A of standard 3?

A

loyalty, prudence and care. You must act for client’s benefit. You should identify the client to whom loyalty is owed. You should make sure client’s objectives and risk preferences are discussed and accounted for.

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22
Q

what is part b of standard 3?

A

fair dealing

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23
Q

what does fairly mean?

A

fairly means that member must take not to discriminate against a client when giving investment advice, should not have different levels of service and should nto have preferential treatment

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24
Q

what is part c of standard 3?

A

suitability, looking into client’s experience, return/risk objectives.

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25
Q

what is part d of standard 3?

A

performance presentation: investment policy and includes client id, investor objective, investor constraint: tax, liquidity, expected cash flow; performance measurement benchmark

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26
Q

how should the IP be presented?

A

it must be presented accurately, fairly and should be complete, should follow the GIPS standards to meet thee obligations which means should present performance of weighted composite of similar portfolios, should include terminated accounts as part of performance history

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27
Q

what is part e of standard 3?

A

preservation of confidentiality: should maintain client’s confidentiality even if they are no longer a client, should disclose illegal info

28
Q

what is standard 4?

A

duties to employers

29
Q

what is part A of standard 4?

A

loyalty: employees must act for the benefit of an employer but should still place client’s interests before employer’s

30
Q

what should members who plan to engage in independent activity do?

A

they must obtain an approval form employer

31
Q

how is practice defined?

A

it is service that employee does for remuneration

32
Q

what can cause violation when leaving an employee?

A

misappropriation of trade secrets, misuse of confidential info, reaching out to employer’s clients prior to leaving, using client’s lists

33
Q

can the knowledge and experience gained on the job be used elsewhere?

A

yes, as long as you are not using any of the intellectual property of the previous company

34
Q

what is whistleblowing?

A

employee acting against employer’ interests due to illegal activities

35
Q

what is part B of standard 4?

A

additional compensation

36
Q

what does additional compensation entail?

A

you must not accept gifts, benefits, compensation or consideration that creates conflict of interest

37
Q

what is part c of standrd 4?

A

responsibility of supervisors

38
Q

what does responsibility of supervisors entail?

A

must make reasonable effort to make anyone subject to their authority complies with the rules. Should assume effective compliance system. Implement education programs. Notify the management of inadequate compliance system.

39
Q

what is standard 5?

A

investment analysis and recommendations

40
Q

what is part a of standard 5?

A

diligence and reasonable basis

41
Q

what does diligence and reasonable basis include?

A

exercise diligence and independent in analysing investments, have a reasonable basis for investment analysis, should have necessary due diligence: macro conditions, operating fin.industry, industry’s current conditions, mutual fund’s management history, quality of assets, peer comparison; if there is secondary research, must determine that it’s sound. Should look at assumptions, rigour of analysis, date of research and evaluation of objectivity

42
Q

what is part b of standard 5?

A

communication with clients/prospective clients

43
Q

what does communication with clients/prospective clients include?

A

should disclose to clients basic format of investment process you use; disclose to clients significant limitations and risks; use reasonable judgement in finding which factors are important to investment analysis

44
Q

what should members do to stay compliant with part b of standard 5?

A

should communicate the important factors in making investment recommendations, should followup with communication of changes in risk, provide regular updates on changes in risk, should maintain records

45
Q

what is part c of standard 5?

A

record retention

46
Q

what does record retention entail?

A

must develop and maintain appropriate records to support investment analysis

47
Q

why are the records unique?

A

they are property of the firm and so when an employee leaves, they cannot take their own research or forms

48
Q

what is standard 6?

A

disclosure of conflicts

49
Q

what does disclosure of conflicts means?

A

must make full and fair disclosure of all matters that could impair the employees independence and objectivity

50
Q

what are the guidelines of disclosure of conflicts?

A

if a conflict cannot be avoided, their disclosure is necessary, members should disclose any materially beneficial ownership interest in security

51
Q

what is part b of standard 6?

A

priority of transactions

52
Q

what does priority of transactions mean?

A

it means that investment transactions for clients or employers must have priority over the transactions by an employee who is the beneficial owner of a specific asset in that transaction

53
Q

when can an employee take action on account where they are beneficial owners?

A

only when a client had adequate opportunity to act on a recommendation

54
Q

what is part c of standard 6?

A

referrals: must disclose to their employer or clients any compensation received or paid for the recommendation of products or services

55
Q

What is standard 7?

A

Conduct as participant in cfa program

56
Q

What is standard 7?

A

Conduct as participant in cfa program

57
Q

What is part a of section 7?

A

Must not engage in any conduct that compromises reputation of CFA, shouldn’t divulge questions/answers, when expressing own opinion shouldn’t disclose content details. As a member you should remit annually to CFA a professional conduct statement and pay applicable fee

58
Q

What is gips?

A

Global investment performance standard

59
Q

Why was gips created?

A

To gauge a fund manager’s ability to make investment decisions

60
Q

What are the gips misleading practices?

A

Using best performing portfolio to present firm’s overall performance

61
Q

What is survivorship bias?

A

Historical data that excludes performance of assets that performed poorly and were terminated

62
Q

What is carrying time period?

A

Performance only in the period where it outperformed the market

63
Q

Who benefits from gips?

A

Investment management groups and clients

64
Q

What does gips require

A

Use of composites which combines discretionary portfolio into one group that represents particular investment objective

65
Q

What are GIPS objectives?

A

Establish investment industry best practices for calculating/presenting, obtain single standard investment performance benchmark, promote the use of accurate data, encourage fair and global competition

CFA Level 1 (3 decks)

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