Ethics Questions Flashcards
- Don Wilson and Nadine Chavis, both CFA charterholders, are investment advisors at Uptown Securities. Wilson recommends that one of his clients buy Alpha Company based on research conducted by Uptown. Chavis recommends that one of her clients sell Alpha Company based on research conducted by another brokerage firm for general distribution. Both recommendations are consistent with each client’s investment objectives and within the context of their entire portfolios. Neither Wilson nor Chavis has reason to suspect that any information contained in the research reports from these two sources is inaccurate or inadequately supported. According to Standard V(A) Diligence and Reasonable Basis, do Wilson and Chavis have a reasonable basis for making their investment recommendations?
A)
Both of these advisors have a reasonable basis for their recommendations.
B)
Only one of these advisors has a reasonable basis for his or her recommendation.
C)
Neither of these advisors has a reasonable basis for their recommendations.
A
Wilson and Chavis have a reasonable and adequate basis if they recommend an investment transaction based on sound research prepared by their firm or an independent third party.
- David Saul, CFA, heads the trust department at Savage National Bank. Fairway Enterprises invites Saul to sit on its Board of Directors. In return for his services on the Board, Fairway offers to provide Saul and his family with access to the facilities at Wilmont Country Club at no cost. Saul will not receive any monetary compensation for his services on the Board. According to CFA Institute Standards of Professional Conduct, which of the following actions must Saul take?
A)
Saul must reject the offer to serve on the Board of Directors.
B)
Saul must obtain written consent from Savage Bank and Fairway Enterprises if he decides to accept the offer to serve on the Board of Directors.
C)
Saul must disclose in writing to Savage Bank the terms of the offer whether or not he accepts the offer to serve on the Board of Directors.
B Standard IV(B) requires that members obtain written consent from all parties involved before accepting monetary compensation or other benefits that they receive for their services that are in addition to compensation or benefits conferred by a member's employer. The phrase "all parties" is referring to Saul's employer and Fairway's Board of Directors.
- An analyst has not paid his CFA Institute dues for several years but has filed a professional conduct statement annually. Which of the following statements is CORRECT regarding his status with CFA Institute? The analyst:
A)
is no longer an active member.
B)
cannot refer to ever having been a member.
C)
is still an active member.
A Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program, applies. In order to use the CFA designation, the member must pay annual dues and submit a yearly Professional Conduct Statement.
- Carol Hull, CFA, is an investment advisor whose prospective client, Frank Peters, presents special requirements. To construct an investment policy statement for Peters, Hull inquires about Peters’ investment experience, risk and return objectives, and financial constraints. Peters states that he has a great deal of investment experience in the capital markets and does not wish to answer questions about his tolerance for risk or his other holdings. Under Standard III(C), Suitability, Hull:
A)
is permitted to manage Peters’ account without any knowledge of his risk preferences.
B)
may accept Peters’ account but may only manage his portfolio to a benchmark or index.
C)
must decline to enter into an advisory relationship with Peters.
A
Hull would not violate Standard III(C), Suitability, by managing Peters’ account without knowledge of his risk preferences. She made a reasonable inquiry into Peters’ investment experience, risk and return objectives, and financial constraints, as the Standard requires. If a client chooses not to provide some of this information, the member or candidate can only be responsible for assessing the suitability of investments based on the information the client does provide.
- Maria Valdes, CFA, is an analyst for Venture Investments in the country of Newamerica, which has laws prohibiting the acceptance of any gift from a vendor if the gift exceeds US $250. Valdes has evidence that her Venture Investments colleague, Ernesto Martinez, CFA, has been receiving gifts from vendors in excess of US $250.
Valdes is obligated to:
A)
disassociate herself from the activity, and urge Venture to persuade Martinez to cease the activity.
B)
disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute of the violation.
C)
disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute and regulatory authorities of the violation.
A Standard I(A), Knowledge of the Law requires members who have knowledge of colleagues engaging in illegal activities to disassociate from the activity and urge their firms to persuade the individual to cease such activity. Reporting to regulatory authorities may be prudent in certain circumstances, but is not required. Reporting to CFA Institute is not required. * the question asks about "obligated to", so make sure you are not answering what "should be done".
- A CFA Institute member, undertaking independent practice that could result in compensation or other benefit:
A)
must notify his employer of the types of service to be rendered, the expected duration, and the expected compensation.
B)
must notify his employer and clients of the types of service to be rendered and the expected compensation.
C)
must notify the entities for whom he plans to undertake independent practice of the compensation he receives from his employer.
A
According to Standard IV(A), Loyalty to Employer, a CFA Institute member, undertaking independent practice that could result in compensation or other benefit, must notify his employer of the types of service to be rendered, the expected duration, and the expected compensation.
注意呢题同#2的区别。#2答案有提到需要notify employer以及新的employer，呢度答案B提到的是client，而C提到要求向新employer提供compensation info好明显是不对的
- Janet Thompson, CFA, is employed as an analyst by Nationwide Securities. According to CFA Institute Standards of Professional Conduct, which of the following statements about Thompson’s duty to Nationwide is NOT correct? Thompson must refrain from:
A)
making arrangements to go into a competitive business before terminating her relationship with Nationwide.
B)
engaging in any conduct that would injure Nationwide.
C)
engaging in independent competitive activity that could conflict with the business of Nationwide unless she receives written consent.
A Standard IV(A) permits Thompson to make preparations to go into a competitive business before terminating her relationship with Nationwide provided that such preparations do not breach her duty of loyalty.
- Jack Salyers, CFA, is considering starting his own firm to compete with his current employer. He takes several actions before turning in his resignation. Which of the following actions is NOT in violation of Standard IV(A), Loyalty to Employer?
A)
Before leaving, Jack solicits his employer’s current clients.
B)
Jack copied the employer’s computer models and other property.
C)
Jack told his employer that he was considering leaving and requested that the employer write him a letter of recommendation.
C
Asking for a letter of recommendation is perfectly acceptable. Soliciting clients and taking the employer’s property like client lists, computer programs, etc. are not permissible.
- Grant Starks, CFA, has been working for Advisors, Inc., for eight years. Starks is about to start his own money management business and has given his two-week notice of his resignation. A few days before his resignation takes effect, a current client of Advisors calls him at his office to inquire about some services for her account at Advisors. During the conversation, Starks tells the client that his new business will have lower commissions than Advisors. Starks has most likely violated:
A)
Standard V(B), Communication with Clients and Prospecitve Clients.
B)
Standard IV(A), Loyalty to Employer.
C)
Standard VI(B), Priority of Transactions.
B
This is a breach of loyalty to his current employer. By telling a current client of his employer about the lower commissions he will charge in his new business, Starks is placing himself in direct competition with Advisors, and this is a violation of Standard IV(A).
- Jennifer Gates is an individual portfolio manager who only uses mutual funds for her clients; she has therefore never created a portfolio of stocks. She enters an Internet chat room on investments and starts answering questions about investments. She states in the chat room that she has a CFA designation. One woman in particular is interested and questions her about the viability of creating her own stock portfolio. Gates feels that this would be a mistake because she only has $150,000 to invest, and states, “I have experience creating stock portfolios, and it does not make sense to do so with only $150,000.” The woman she has chatted with sends her an e-mail and eventually becomes a client of hers. Gates has:
A)
not violated the Standards.
B)
violated the Standards by soliciting business over the Internet.
C)
violated the Standards by misrepresenting her experience.
C
One cannot misrepresent their experience, even over the Internet.
- Jill Marsh, CFA, works for Advisors where she manages various portfolios. Marsh’s godfather is an accountant and has done Marsh’s tax returns every year as a birthday gift. Marsh’s godfather has recently become a client of Advisors and asked specifically for Marsh to manage his account. In order to comply Standard IV(B), Disclosure of Additional Compensation Arrangements, she needs to:
A)
have her godfather cease doing her taxes.
B)
liquidate from her personal portfolio any stocks her godfather owns and verbally tell her supervisor about the tax services.
C)
do neither of the actions listed here.
C
Standard IV(B) requires that members disclose to their employer in writing all benefits that they receive in addition to their regular compensation for services they perform on behalf of their employer. It is not unreasonable for an individual’s godfather to give them a birthday gift. Moreover, since the tax services were a regular birthday present before her godfather became a client, this implies that they are unrelated to any investment management services.
*注意呢题同前面的有关disclosure的题目的区别。答案解释有提到ongoing before beginning of clientship以及birthday gift
- When measuring and presenting their investment performance, GIPS compliant firms are required to:
A)
disclose the performance of the best-performing accounts in each composite.
B)
include terminated accounts in their performance history.
C)
exclude time periods that are unrepresentative of the firm’s performance history.
B
Because excluding terminated accounts introduces survivorship bias, GIPS requires firms to include these accounts in their performance history. The other two choices describe misleading performance presentation practices that GIPS are designed to avoid.
- To prepare a GIPS-compliant performance presentation, a firm must:
A)
restate the performance history of its composites if the firm’s organization has changed materially.
B)
maintain a complete list of the firm’s composites and their descriptions.
C)
disclose which specific performance calculations are made in compliance with GIPS.
B
GIPS Section 0, “Fundamentals of Compliance,” states that firms:
Must provide a complete list of the firm’s composites, including those that have been discontinued within the last five years, to any prospective client who requests one.
Must not claim any partial compliance with GIPS or state that a specific calculation is in compliance with GIPS.
Must not alter historical performance of composites based on a change in the firm’s organization.
- According to CFA Institute Standards of Professional Conduct, which of the following is least likely a form of misrepresentation?
A)
Presenting statistical estimates of forecasts prepared by others with the source identified, but without qualifying statements or caveats that may have been used.
B)
Attibuting specific quotations to “leading analysts” and “investment experts” without specific reference.
C)
Using factual information published by recognized financial and statistical reporting services or similar sources without acknowledgment.
C Standard I(C) provides that "factual information published by recognized financial and statistical reporting services or similar sources" may be used without an acknowledgment.
- Calvin Doggett, CFA, has been contacted by the CFA Institute Professional Conduct Program (PCP) regarding allegations that he has taken investment actions that were unsuitable for his clients. Doggett is questioned by PCP concerning the identity of his clients he considered suitable for investing in a very risky start-up company that eventually went bankrupt.
Doggett will:
A)
not violate the Code and Standards by revealing the names, financial condition and investment objectives of his clients to PCP.
B)
not violate the Code and Standards only if he reveals the financial condition and investment objectives of his clients on an anonymous basis and does not reveal the names of his clients to PCP.
C)
violate the Code and Standards by fully cooperating with a PCP investigation if it means revealing confidential information.
A Standard III(E) requires members to preserve client confidentiality. An exception to this standard is a PCP investigation. Because PCP will also keep the clients' information confidential, members are expected to fully cooperate with PCP investigations. *remember PCP is the exception
- Which of the following statements regarding GIPS is least accurate?
A)
A GIPS objective is to promote global “self-regulation.”
B)
To stay GIPS compliant, a firm must abide by GIPS guidelines even when conflicting with local or country-specific regulations.
C)
GIPS allows clients to have more confidence in reported performance.
B
To stay GIPS compliant, firms are required to comply with local laws even if they conflict with GIPS. However, the discrepancy must be disclosed.
- Janine Walker is an individual investment advisor with 200 individual clients. When she first obtains a client, Walker solicits personal data that helps her formulate an investment recommendation, including tax status, income, expenditure needs, and risk tolerance. The Standards:
A)
only require to update a client’s data when a material change is being made to the clients’ portfolio.
B)
require updating a client’s data only when a material change occurs to the personal data.
C)
require Walker to update the data regularly.
C
According to Standard III(C), Suitability, Members and Candidates must reassess client information and update regularly.
- The CFA Institute Standards of Practice Handbook requires CFA Institute members to do all the following EXCEPT:
A)
to disclose in writing to the proper regulatory authority all observed violations of the securities laws and regulations.
B)
receive written permission from both their employer and outside clients to engage in investment consulting outside the firm.
C)
to inform employer, clients, and potential clients of benefits received for recommending products or services.
A
Members are not required to report violations of others to regulatory authorities, either verbally or in writing, but such reporting may be prudent.
*注意答案B和C提到的disclosure的要求。
Session 1 > Reading 3-I > LOS (A)
- In the course of reviewing the Corn Co., an analyst has received comments from management that, while not meaningful by themselves, when pieced together with data he has accumulated from outside sources, lead him to recommend placing Corn Co. on his firm’s sell list. What should the analyst do?
A)
Show his report to his own manager and counsel for their review since this information has become material once it was combined with his analysis.
B)
Not issue the report until the comments are publicly announced.
C)
The comments are non material and the report can be issued as long as he maintains a file of the facts as supplied by management.
C
This is an example of the mosaic theory where separate pieces of nonmaterial information are pieced together to make an investment recommendation.
- Steve Phillips is the new director of equity research for a brokerage company. He receives a call from a reporter at the Financial News, a weekly publication that comes out on Mondays. The reporter explains the relationship she had with his predecessor. They would share information that they both learned on stocks-the former director would benefit the company’s clients by news he obtained from the reporter in exchange for information he gave to her. The former director could ask her not to publish any information he gave her until after a certain date, ensuring that the brokerage clients would be informed before the publication date. After the conversation, Phillips called the former director, who confirmed that the reporter was trustworthy with respect to honoring the agreement for delaying publication until clients have been informed. Philips should:
A)
disclose research not yet disclosed to clients, as long as the reporter promises not to publish the information until after all clients have received the research, and the reporter provides valuable information of her own.
B)
only disclose research that has already been disseminated to clients, as long as the reporter is providing valuable information of her own.
C)
not disclose any research even after it has been disseminated to clients regardless of the value of the information that the reporter may have.
B
In no case should information be disclosed to a reporter before all clients are provided with the research-doing so will violate the Standard on fair dealing. However, once clients have been informed, there is no violation in releasing the information to the reporter, and in doing so Phillips might obtain information that can further help his clients.
*第一次选的是C。。
- Rickard Advisors recently had a trading error in a customer account that was subsequently discovered by Rickard. The firm felt embarrassed by the disclosure of this error, and, in order to induce the client to continue its relationship, Rickard offers the client preferential access to a new issue that is expected to be “hot.” Which Standard is violated, if any?
A) The Standard concerning Fiduciary Duty. B) The Standard concerning Independence and Objectivity. C) The Standard concerning Fair Dealing.
C
Rickard is in violation of the Standard concerning Fair Dealing by offering the client preferential access to a “hot” new issue. There is no obvious violation of Fiduciary Duty, since there is no evidence that Rickard is placing its own financial interest ahead of the client.
- Chuck Daniels has just been hired to manage a security analysis group for Aaron Asset Management. Daniels performed a similar function at another firm and finds the compliance system at Aaron inadequate. He develops a system that he feels is appropriate, but senior management tells him he will have to wait six months to implement the system. Daniels should:
A)
protest in writing the delay, listing the potential dangers that can occur.
B)
decline in writing to accept supervisory responsibility until a satisfactory compliance system is put into place.
C)
resign his position immediately.
B
According to the Standard on supervisory responsibilities, Daniels should decline in writing to accept supervisory responsibility until a satisfactory compliance system is put into place.
Question From: Session 1 > Reading 3 > LOS a, b, c
- According to Standard III(C) Suitability, which of the following is least likely to be considered a relevant factor in determining the appropriateness and suitability of investment recommendations or actions for each portfolio or client?
A)
Basic characteristics of the total portfolio.
B)
Needs and circumstances of the portfolio or client.
C)
Best interests of the investment professional.
C
Determining appropriateness and suitability focuses on the portfolio or client, not on the investment professional. Investment professionals should take particular care to ensure that their goals in selling products or executing security transactions do not conflict with the best interests of the client.
- An analyst, who is a CFA charterholder, is working in a foreign country. Which of the following statements is CORRECT? The analyst is:
A)
governed by the laws and standards of the country in which he is living and working.
B)
governed by CFA Institute’s Code and Standards.
C)
covered by the strictest of the following laws and rules: his own country’s, the foreign country’s or CFA Institute’s Code and Standards.
C
The analyst is covered by the strictest of the following laws and rules: his own country’s, the foreign country’s or CFA Institute’s Code and Standards.
- Dave Kline, CFA, is a personal investment advisor. After a dispute with a coworker on margin policy, he formally resigns his position by giving suitable notice. However, he does not follow his firm’s established “Transition and Exit Policies” regarding discussion of the reason for his departure. During his final two weeks of employment, Kline routinely discusses the margin policy dispute, stating “…anyone who would lend that much money on securities of such low quality does not belong in this business…” Kline’s statements are in direct violation of the firm’s “Transition and Exit Policies,” but he considers it a free-speech issue. Kline is most likely:
A)
in violation of Standard IV(A) “Loyalty” recommended procedures for failing to follow the employer’s policies and procedures related to termination policy.
B)
not in violation of the Code and Standards.
C)
in violation of Standard IV(A) “Loyalty” recommended procedures for failing to notify regulators of the dangerous margin policy.
A
Kline is in violation of Standard IV(A) “Loyalty” recommended procedures for failing to follow the employer’s policies and procedures related to termination policy. Members and candidates should understand and follow their employer’s policies and operating procedures. Also, members and candidates planning to leave their current employer must continue to act in the employer’s best interest.
*第一次选的是B
- The Konkol Company implements a new methodology for portfolio valuation that is licensed to them by ABC Statistics. Konkol complies with the CFA Institute Code and Standards by:
A)
discussing the new methodology with clients only when a change in the security selection process is involved.
B)
not discussing the new methodology with clients because there is no need to, as it will not change their risk and yield preferences.
C)
discussing the new methodology with the clients, in its entirety.
C Standard V(B), Communication with Clients and Prospects, requires any change in the scope, valuation methodology, or focus of the portfolio to be discussed with clients.
- While attending his wife’s office party, Donald North, CFA, overhears two top executives from Parker Industries discussing that the company’s Board of Directors just approved to omit its cash dividend due to unexpected losses during the quarter. Parker has paid a quarterly dividend for the past ten years. The next day, North calls his broker and instructs her to sell short Parker’s common stock.
While in a coffee shop, Diane South, CFA, overhears two top executives from Ryland Products say that their company is about to be acquired by another company for a substantial premium over the market price. The next day, South calls her broker and instructs him to buy 500 shares of Ryland’s common stock.
Which of the following statements about whether North and South violated Standard II(A), Material Nonpublic Information, is CORRECT?
A)
North violated Standard II(A) but South did not violate Standard II(A).
B)
Both North and South violated Standard II(A).
C)
Neither North nor South violated Standards II(A).
B
According to Standard II(A), a member or candidate must not act or cause others to act on material nonpublic information until that same information is made public. In both cases, the information was material nonpublic information; therefore, both North and South are in violation.
- According to the CFA Institute Standards of Professional Conduct, which of the following statements about members with supervisory responsibility is least accurate? Members with supervisory responsibility:
A)
are relieved of their supervisory responsibility if they delegate their supervisory duties to other members of CFA Institute.
B)
must make reasonable efforts to detect violation of laws, rules, regulations, and the Code and Standards.
C)
are expected to have in-depth knowledge of the Code and Standards and to apply this knowledge in discharging their supervisory responsibilities.
A
Although members who supervise large numbers of employees may delegate supervisory duties, such delegation does not relieve them of their supervisory responsibility.
- An analyst preparing a report needs to cite which of the following?
A)
Estimates of betas provided by Standard & Poor’s.
B)
A recent quote from the Federal Reserve Chairman.
C)
The individual who developed a chart from the same firm.
B
Statistics provided by a recognized agency, such as Standard and Poor’s, do not need to be cited. Charts, quotes, and algorithms developed by the firm would need to be cited when they are used but the individual(s) who developed the materials within the firm do not need to be cited.
- Which of the following would be a violation of Standard III(B), Fair Dealing?
A)
Trading for regular accounts before discretionary accounts.
B)
Having well defined guidelines for pre-dissemination.
C)
Limiting the number of employees privy to recommendations and changes.
A
Do not discriminate against a client when disseminating investment recommendations. If the firm offers different levels of service, this fact must be offered and disclosed to all clients. The other choices are necessary parts of the Standard. The Standard actually says to have published personal guidelines for pre-dissemination, which implies that the guidelines be well-defined.
- Which of the following statements most accurately describes the requirements for GIPS verification?
A)
A firm must select a representative set of composites for third-party GIPS verification.
B)
Third-party verification is required for a firm to claim compliance with GIPS.
C)
Verification of GIPS compliance is recommended, but not required.
c
Verification of GIPS compliance is recommended but not required. If a firm chooses verification, GIPS require the verification to be performed by a third party and apply to the entire firm’s methods and practices, rather than that of selected composites.
*B应该是错在”claim compliance”呢个部分 （见#34）
Question From: Session 1 > Reading 4 > LOS c
During 2004 Nancy Arnold received an undergraduate business degree with a management major and completed all requirements for the CFA designation imposed by CFA Institute. She is applying for employment at several brokerage firms. Her resume states, “I was awarded the CFA degree in 2004 by CFA Institute.” Her resume also states that she graduated “with honors” and majored in finance. Her grade point average was 3.48 but “with honors” requires a 3.50 grade point average.
Which of the following statements about Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program, and Standard I(C), Misrepresentation, is CORRECT? Arnold:
A)
violated Standard I(C) but she did not violate Standard VII(B).
B)
did not violate either Standard VII(B) or Standard I(C).
C)
violated both Standard VII(B) and Standard I(C).
C
Arnold violated Standard VII(B). The CFA designation should not be referred to as a degree. Arnold also violated Standard I(C) because her claim that she graduated “with honors” is not true.
- Janet Coleman, CFA, is preparing a research report on Union Power and Light. Due to deregulation, utility companies face increased competition. During the past year, three of the five utility companies in her region have cut their dividends by 50%, on average, to provide more internal funds for investment purposes. In a discussion with Union’s chief executive officer, Coleman learned that Union expects to have a record amount of capital expenditures during the next year. Although Union subsequently issued a press release about its capital expenditure plans, it did not make any public statements about a change in dividend policy. Coleman reasons that the management of Union will be under pressure to cut its dividends within the next year to remain competitive. Coleman issues a research report in which she states:
“Union Power and Light will decrease its dividend from $2 to $1 a share by the second quarter. We expect that Union will strengthen its competitive position by using more internally generated funds to finance its investment opportunities. If investors buy the stock now at around $50 a share, their total return could exceed 20% on the stock.”
Based on CFA Institute Standards of Professional Conduct, which of the following statements about Coleman’s actions is most accurate?
A)
Coleman did not violate the Standards.
B)
Coleman violated the Standards because she failed to separate opinion from fact in her research report.
C)
Coleman violated the Standards because she used material nonpublic information.
B
Coleman is required to distinguish between facts and opinions in her research reports. Her statement that Union will decrease its dividend from $2 to $1 a share is a prediction, not a fact, and therefore should be distinguished clearly as an opinion.
- Which of the following statements most accurately describes verification under the Global Investment Performance Standards (GIPS)? GIPS verification:
A)
requires verification of individual composites.
B)
requires a verification report to be issued for the entire firm.
C)
is required for a firm to claim GIPS compliance.
B.
A single verification report is issued with respect to the entire firm; GIPS verification cannot be carried out for a single composite.
*选项C同#31一样，应该是错在claim compliance
Question From: Session 1 > Reading 4 > LOS c
- Bob Douglas, CFA, is considering leaving his current employer to compete in the same field. He did not sign a non-compete clause when he was hired. He may:
A)
begin competing with his current employer as long as the employer has been informed of Douglas’ future intentions.
B)
may not prepare to compete, begin competing, or anything related to competing with his current employer.
C)
plan and prepare to compete with his current employer, but not begin competing until his resignation is effective.
C
Douglas may plan and prepare to compete with his current employer, but may not begin competing until his resignation is effective or he gets permission from his employer. Members must provide notification to their employer describing the types of services to be rendered, the expected duration, and compensation for the services.
Question From: Session 1 > Reading 3-IV > LOS (A)
- Lee Roth, who is an investment advisor, is riding in a taxi and finds a file of information labeled “Genco Valuation.” The folder contains a great deal of financial data, projections and nonpublic information concerning the food products industry that lead Roth to believe that Genco will be worth 50% more than its current stock value. Roth also finds some correspondence that leads him to believe that the file belonged to Tom Hagan. Roth tries to find out where Hagan works so he can return the file. Roth can recommend Genco to his clients unless Hagan works for:
A)
Roth cannot recommend Genco to his clients at this time.
B)
the corporate finance department for Genco.
C)
the equity research department for a brokerage firm.
A
The information is material and nonpublic; therefore, Roth cannot act or cause others to act at this time.
- A member or candidate who produces issuer-paid research should most appropriately negotiate a:
A)
fee that may include equity or warrants.
B)
flat fee prior to writing the report.
C)
fee based on the performance of the issuer’s shares.
B Standard I(B) Independence and Objectivity states that the best practice for issuer-paid research is to negotiate a flat fee before writing the report. Compensation that depends on the performance of the issuer's securities can compromise an analyst's objectivity by creating an incentive to write a positive recommendation.
- Sanctions that CFA Institute may impose on a member or candidate under the Professional Conduct Program include:
A)
public censure.
B)
suspension from employment in the financial services industry.
C)
returning of all profits gained through violations of the Code and Standards.
** what are the sanactions imposable by CFA institution? (4)
A
Sanctions that CFA Institute may impose include public censure, suspension from membership and use of the CFA designation, revocation of the CFA charter, or suspension of a candidate’s participation in the CFA program.
*记！！
- Betsy Fox is an investment advisor who has a client, Don Gordon, who is an employment lawyer. At lunch, Fox noticed Gordon and the Chief Financial Officer of Blue Star Company at the next table. She overhears them talking and ascertains that Blue Star is about to announce higher than expected earnings. Before the earnings release, Gordon contacts Fox and asks her to purchase 3,000 shares for his portfolio. Fox:
A)
can only purchase shares for her personal account after informing all of her clients about the potential of the increase in earnings.
B)
must refuse to purchase shares for Gordon.
C)
can purchase shares for Gordon, but cannot ever purchase shares for her personal account.
B
According to Standard II(A), Material Nonpublic Information, Fox cannot act or cause others to act on material nonpublic information until the information is made public. The information overheard at lunch was material and nonpublic; therefore, Fox must wait until the information is made public before accepting Gordon’s order.
*cannot act or cause others to act! 虽然唔系佢主动去communicate但仍然唔可以做呢个order
- When verifying a firm’s compliance with Global Performance Investment Standards (GIPS), the verifier must:
A)
clearly identify the composites for which verification has been performed.
B)
disclose whether the verification was performed by the firm’s internal auditors or a third party.
C)
attest that the firm’s processes and procedures are established to present performance in accordance with GIPS requirements.
C
The verifier must attest that the firm has complied with all GIPS requirements for composite construction on a firm-wide basis and that the firm’s processes and procedures are established to present performance in accordance with the calculation methodology, data, and format requirements of GIPS. Verification is not a GIPS requirement. If performed, verification applies to the firm as a whole, not to individual composites, and must be performed by an independent third party, not the firm itself.
- In 1995, the CFA Institute sponsored and funded the Global Investment Performance Standards (GIPS) in response to:
A)
an increase in insider trading.
B)
a need to address issues, such as portability of investment results.
C)
both of the reasons listed here.
**what is GIPS established to address? (3)
B
The GIPS were created to address the portability of investment results, varying time periods, and survivorship biases. Insider trading was not an issue.
- Which of the following best describes the underlying principles upon which the Global Investment Performance Standards (GIPS) are based?
A)
Uniformity and consistent application of standards for the global regulation of the securities industry.
B)
Full disclosure and fair representation of performance results.
C)
Fair and consistent application of a global set of regulatory requirements.
B
The GIPS standards are a set of voluntary standards based on the fundamental principles of full disclosure and fair representation of performance results.
- An analyst belongs to a nationally recognized charitable organization, which requires dues for membership. The analyst has worked out a deal under which he provides money management advice in lieu of paying dues. While performing services for the organization, the analyst discovers some useful computer programs that his predecessor developed and left as the property of the organization. The analyst decides to use the computer programs in his consulting business. This action is:
A)
a violation of Standard III(B) concerning fair dealing.
B)
appropriate since the analyst is technically an employee of the organization.
C)
a violation of Standard I(D) concerning misconduct.
C
Since the programs are the property of the organization, the analyst can only use them for the organization. It does not matter whether the analyst is an employee or not. Personal use of the programs without permission from the charitable organization is dishonest and prohibited.
- Jess Green, CFA is the research director for Castle Investment, Inc., and has supervisory responsibility over eight analysts, including three CFA charterholders. Castle has a compliance program in place. According to CFA Institute Standards of Professional Conduct, which of the following is least likely an action that Green should take to adhere to the compliance procedures involving responsibilities of supervisors? Green should:
A)
issue periodic reminders of the procedures to all analysts under his supervision.
B)
incorporate a professional conduct evaluation as part of the performance review only for the three CFA charterholders.
C)
disseminate the contents of the compliance program to the eight analysts.
B
Green should incorporate a professional conduct evaluation as part of his review of all eight analysts under his supervision, not just the three CFA charterholders.
- John Hill, CFA, has been working for Advisors, Inc., for eight years. Hill is about to start his own money management business and has given his two-week notice of his resignation from Advisors. A few days before his resignation takes effect, a former client of Advisors calls Hill at his home about his new firm. The former client says that he is very happy that Hill is leaving Advisors because now he and Hill can resume a professional relationship. The client says that he would never become a client of Advisors again. Hill promises to call the client back after he has left Advisors. Hill does not tell his employer about the call. Hill has most likely:
A)
violated the Standard concerning loyalty to employer.
B)
violated the Standard concerning disclosure of conflicts.
C)
not violated the Standards.
C
Based on the information here, Hill has done nothing wrong. He took a call at his home, presumably on his own time, and the client made it clear that he would never be a client of Advisors. Therefore, there was no breach of loyalty to Advisors by Hill, nor is there a conflict of interest.
*第一次选的是b
- A CFA Institute member is a citizen of Abdhari and lives and works in Balwalla for a company based in Abdhari. Balwalla has no laws against the use of material non-public information. Based on this information, the CFA Institute member may:
A)
trade using material non-public information.
B)
not trade using material non-public information.
C)
trade using material non-public information in Balwalla but not in Abdhari.
Explanation
B
CFA Institute Standard II(A) prohibits trading using material non-public information. A member may not trade using such information regardless of the laws of Abdhari and Balwalla.
*must follow the strictest of 1）working country, 2)living country, 3) CFA standard
- In dealing with the public and others, the CFA Institute Code of Ethics requires that CFA Institute members act with:
A)
candor, skill, and honor.
B)
honesty, professionalism, and high ethical standards.
C)
integrity, competence, and respect.
C
Integrity, competence, and respect are mentioned by name in the first component of the Code of Ethics.
- Marc Randall, CFA, is an investment analyst. During a meeting with a potential client, Randall’s boss states that, “You can be sure our investments will always outperform Treasury Bonds because of our fine research staff members, like Marc.” Randall knows that this statement is:
A)
not in violation of the Code and Standards.
B)
a violation of the Standard concerning prohibition against misrepresentation.
C)
a violation of fiduciary duties owed to clients under the Standards.
B
Under Standard I(C), members are forbidden from guaranteeing a specific rate of return on volatile investments. Therefore, the statement is in violation of the Standard.
- Bertrand Greene, CFA, is preparing a report on Blanding, Inc. Blanding’s earnings have increased in each of the last six years by an average of 11.8%. Based on his analysis, Greene projects that Blanding’s earnings will increase by 12.5% in each of the next two years. Greene will violate the Code and Standards if he states:
A)
“Blanding’s earnings have been compounding at approximately 11.8% annually.”
B)
“I expect Blanding’s earnings growth to increase to 12.5% annually in the next two years.”
C)
“Blanding’s earnings will grow at 12.5% annually in each of the next two years.”
C Standard V(B) Communication with Clients and Prospective Clients requires members to distinguish between fact and opinion. "Blanding's earnings will grow at 12.5% annually in each of the next two years" states an uncertain future outcome as a fact and thus violates this Standard. Preceding the statement with "I expect..." identifies the forecast properly as an opinion.
- Which of the following statements is an acceptable reference to the CFA designation?
A)
Most of our portfolio managers are CFAs and are committed to the highest ethical standards.
B)
All members of our research team are CFA charterholders who passed their exams on their first tries.
C)
Tom and Elizabeth are Chartered Financial Analysts.
B
The CFA or Chartered Financial Analyst designation must be used as an adjective, not as a noun. It is acceptable to mention passing the exams on the first try if this is a statement of fact.
**Weird but CFA must be an adj.
- Rey Sanchez, CFA, covers the specialty chemical industry for Rock Advisory Associates. Until today he has had a buy recommendation on ChemStar, and many of the firm’s customers have purchased shares based upon his recommendation. The firm’s client accounts are divided into two fundamental categories: trading and buy-and-hold accounts. The firm holds discretionary trading authority over the trading accounts, but not the buy-and-hold accounts. Sanchez has recently come to believe that the fundamentals are changing for the worse at ChemStar, and is preparing a sell recommendation. He calls a meeting of the firm’s portfolio managers with accounts holding ChemStar and tells them of the pending release of the sell recommendation. On this basis, the portfolio managers sell all positions in the discretionary accounts but not in the buy-and-hold accounts. Sanchez completes and mails the report to all clients two days later, and, shortly thereafter, many of the buy-and-hold accounts sell their ChemStar positions. With regard to these actions, Sanchez is:
A)
in violation of the Standard on Fair Dealing; the portfolio managers are not in violation of the Standard on Fair Dealing.
B)
in violation of the Standard on Fair Dealing; the portfolio managers are in violation of the Standard on Fair Dealing.
C)
not in violation of the Standard on Fair Dealing; the portfolio managers are in violation of the Standard on Fair Dealing.
B
Sanchez is in violation of the Standard III(B), Fair Dealing, since he has disseminated his recommendation preferentially to the portfolio managers in advance of making the report available to all clients who hold shares of ChemStar. The portfolio managers are in violation of the Standard since they are effectively giving preferential treatment to the trading accounts over the buy-and-hold accounts in the placement of orders based upon the change in recommendation.
- Ron Taylor, a Level I CFA candidate, trades cotton contracts for a small commodity broker. Taylor convinces a government cotton inspector to issue a warning that the Texas cotton crop is in danger from insect infestation. The price of cotton soars. Taylor immediately shorts cotton futures. Once the position is created, the government inspector issues a second report reversing his original opinion and cotton prices plummet.
Cedric Sims, a Level III CFA candidate, would like to generate a tax loss on a security held in his personal portfolio; however, he believes the security has significant upside potential. To avoid the wash sale provisions of the income tax code, Sims sells the security and simultaneously creates a synthetic long position using derivatives.
With regard to Standard II(B) Market Manipulation, which of the following statements concerning Taylor’s and Sims’s conduct is CORRECT?
A)
Both Taylor and Sims are in violation of Standard II(B).
B)
Neither Taylor nor Sims is in violation of Standard II(B).
C)
Taylor is in violation of Standard II(B), but Sims is not in violation.
C
Taylor is in violation of Standard II(B) Market Manipulation by creating a scheme that caused others to trade on false information. Sims is not in violation of Standard II(B). The Standard does not prohibit transactions conducted for tax purposes.
- Fern Baldwin, CFA, as a representative for Fernholz Investment Management, is compensated by a base salary plus a percentage of fees generated. In addition, she receives a quarterly performance bonus on a particular client’s fee if the client’s account increases in value by more than 2 points over a benchmark index. Baldwin had a meeting with a prospect in which she described the firm’s investment approach but did not disclose her base salary, percentage fee, or bonus.
Baldwin has:
A)
violated the Standards by not disclosing her performance bonus.
B)
violated the Standards by not disclosing her salary, fee percentage, and performance bonus.
C)
not violated the Standards because there is no conflict of interest with a potential prospect in the employment arrangements.
A Standard VI(A) requires members to disclose all matters that could reasonably be expected to impair the member's ability to make unbiased and objective recommendations. Compensation based on a percentage of fees generated does not create an inherent bias. If, however, a performance bonus is paid for investment results, it may unduly encourage the manager to take more risk than is proper and prudent, and so the existence of the bonus opportunity must be disclosed to the client.
- The following information pertains to the Galaxy Trust, a trust established by Stephen P. House and managed by Gamma Investment LLC:
At the time the trust was established House provided $5 million in cash to fund the trust, but Gamma was aware that 93% of his personal assets were in the form of Oracle stock.
Gamma has been asked to view his funds and the trust as a single entity for planning purposes, since House’s will stipulates that all of his estate will pass to the trust upon his death.
The investment policy statement, developed in September 1996, stipulates that the trust should maintain a short position in Oracle stock and use the proceeds to diversify the trust more adequately.
House was able to sell all of his Oracle shares back to the corporation in January 1999 for cash.
The policy statement redrawn in September 1999 continues to stipulate that the trust hold a short position in Oracle stock.
House has given the portfolio manager in charge of the trust an all expenses paid vacation package anywhere in the world each year at Christmas. The portfolio manager has reported this fact in writing to his immediate supervisor at Gamma.
Which of the following is most correct? The investment manager is:
A)
not in violation of the Code and Standards for not properly updating the investment policy statement in light of the change in the circumstances and is not in violation with regard to the acceptance of the gift from House.
B)
in violation of the Code and Standards by not properly updating the investment policy statement in light of the change in the circumstances and is in violation with regard to the acceptance of the gift from House.
C)
in violation of the Code and Standards by not properly updating the investment policy statement in light of the change in the circumstances but is not in violation with regard to the acceptance of the gift from House.
C
The investment manager is in violation of the Standard requiring him to make a reasonable inquiry into the client’s financial situation and update the investment policy statement since such a dramatic change in the client’s circumstances would undoubtedly alter the investment policy statement and would probably eliminate the need to hold a short position in Oracle. The investment manager is not in violation of the Standard concerning additional compensation, since the gift has been reported to his supervisor and has come from a client. If there was a failure to report such a gift, if the firm had a rule in place against the acceptance of gifts from clients, or if the gift had come from a non-client, there would be a violation of the standard.
- A framework for ethical decision making is most appropriately applied to:
A)
determine whether actions are legal.
B)
aid decision makers in considering alternatives and their potential impacts.
C)
reduce the need to maintain a large compliance department.
B
A framework for ethical decision making is a way to help decision makers consider alternatives and their impact on stakeholders.
- WEB, an investment-banking firm, is the principal underwriter for MTEX’s upcoming debenture issue. Wendy Berry, CFA, an analyst with WEB, has found out from an employee in MTEX’s programming department that a serious glitch was recently discovered in the software program of their major new product line. In fact, the glitch is so bad that most of their orders have been canceled. Berry checked the debenture’s prospectus and found no mention of this development. The red herring prospectus has already been distributed. Berry’s best course of action is to:
A)
notify potential investors of the omission on a fair and equitable basis.
B)
inform her immediate supervisor at WEB of her discovery.
C)
keep quiet since this is material non-public inside information.
B
Berry should report this information only to her immediate supervisor. Subsequently, she and her supervisor may consult with legal counsel concerning the competing issues in this situation. For the present, she should avoid disclosure to colleagues who do not need to know the information and she should also avoid disclosure to clients.
- Andy Rock, CFA, is an analyst at Best Trade Co. The company is going to announce a sell recommendation on Biomed stock in one hour. Rock was a member of the team who reached the decision on Biomed. Rock’s wife has an account at Best Trade Co. that contains Biomed stock. According to the Code and Standards, trading on Rock’s wife’s account can begin:
A)
only after Rock, as a beneficial owner, has given an appropriate amount of time for clients and his employer to act.
B)
as soon as the information is disseminated to all clients.
C)
only after the recommendation is announced to the general public.
B
Family accounts that are client accounts should be treated like any other firm account and should neither be given special treatment nor be disadvantaged because of an existing family relationship with the member or candidate. Members or candidates may undertake transactions in accounts for which they are a beneficial owner only after their clients and employers have had adequate opportunity to act on the recommendation. Personal transactions include those made for the member or candidate’s own account, for family (including spouse, children, and other immediate family members) accounts, and for accounts in which the member or candidate has a direct or indirect pecuniary interest, such as a trust or retirement account. It could be argued that Rock is a beneficial owner of his wife’s account and the reason why his wife’s account should be treated like any other client account is because it does not state that Rock makes the trades in his wife’s account. From that we are to infer that another person other than Rock is managing his wife’s account thus she should be treated like any other client.
- Jan Hirsh, CFA, is employed as manager of a college endowment fund. The fund’s board has recently voted to divest any stocks of tobacco companies from the portfolio. Hirsh currently owns shares of a major tobacco company. According to the Standards, Hirsch must:
A)
disclose her ownership in the stocks to the board or sell her shares.
B)
disclose her ownership in the stocks to her supervisor or compliance officer.
C)
do nothing.
C
From the given information, there is no conflict of interest and no violation of Standard VI(A) Disclosure of Conflicts.
- Which of the following statements about the responsibilities of CFA charterholders is CORRECT? CFA charterholders:
A)
need not comply with the laws and rules governing their profession or must not engage in any individual behavior that reflects adversely on the entire profession.
B)
must comply with the laws and rules governing their profession and must not engage in any individual behavior that reflects adversely on the entire profession.
C)
are only obligated to comply with securities laws in the U.S.
B
CFA charterholders must comply with the laws and rules governing their profession and must not engage in any individual behavior that reflects adversely on the entire profession. While they should act honorably and follow U.S. securities laws, they are obligated to more than that, as set forth in the Code and Standards.
60. Which of the following would be the least important proxy issue? A) Takeover defense and related actions. B) Election of internal auditors. C) Compensation plans for officers.
B
Election of internal auditors is not a major proxy issue.
- According to the Code of Ethics, a member reflects credit on the profession when a member:
A)
practices in a professional and ethical manner.
B)
places the clients first.
C)
consults with other members on a regular basis.
A
Component four of the Code says that a member shall “Practice and encourage others to practice in a professional and ethical manner that will reflect credit on members and the profession.” Neither of the other choices are implied by the Code.
- Fernando Abrea, CFA was an analyst for Pacific Investments. In October he left Pacific and joined Global Securities as manager of a local office. Abrea’s change of employment came about in the following manner:
In April, Abrea contacted Global about a possible position he saw advertised in a financial publication and had exploratory meetings with Global.
In July, Abrea submitted a strategic plan to Global and signed an agreement to join Global. He then contracted for office space on behalf of Global.
On October 15, Abrea’s resignation from Pacific became effective. He did not take any client lists from Pacific.
On October 16, Abrea mailed a letter that explained his new undertaking with Global to prospective clients, including his former clients at Pacific.
With respect to Standard IV(A) Loyalty, Abrea:
A)
violated the Standard by contacting his former clients at Pacific.
B)
violated the Standard by contracting for office space on behalf of Global.
C)
did not violate the Standard.
C
According to Standard IV(A) Loyalty, preparations to leave employment are not prohibited. Even though Abrea engaged in significant preparatory activities prior to beginning his new venture, none of these actions suggest Abrea did not continue to act in Pacific’s interests while he was employed by Pacific. Abrea may contact his former clients on behalf of Global after his employment by Pacific has officially ended, as long as he did not misappropriate their contact information from Pacific.
- Which of the following is least likely a recommended procedure for supervisors and compliance officers to comply with Standard IV(C) Responsibilities of Supervisors?
A)
Disseminate the firm’s compliance procedures to employees.
B)
Incorporate a professional conduct evaluation into the employee’s performance review.
C)
Hold hearings when violations have occurred to determine the severity of the violations.
C
While a supervisor should respond promptly and investigate violations, there is no obligation to hold hearings when violations have occurred.
- An investment advisor takes a trip for which his firm will pay the expenses. Upon his return he alters some of the numbers on restaurant receipts to inflate the expenses by $64. Is this a violation of Standard I(D)?
A)
Yes, because it reflects adversely on the charterholder’s professional reputation.
B)
No, if such a crime carries less than a one-year prison term.
C)
Yes, because the amount involved is over $50.
A
Professional conduct involving dishonesty, fraud, or deceit is a direct violation of Standard I(D), Misconduct.
- Jack Stevens is employed by a company to provide investment advice to participants in the firm’s 401(k) plan. One of the investment options is a stable value fund run by the company. Stevens’ research indicates that the fund is far riskier and less liquid than the typical stable value fund and has a fundamental asset value lower than the book value of the assets. He tells Jessica Cox, the head of employee benefits, about his research, and indicates that he will advise new employees to not invest in the fund and will advise employees who already own the fund to reduce their holdings in the fund. Cox points out that the fund is not in any current danger because there are very few redemptions requested of the fund. Cox also states that a sell recommendation may become a self fulfilling prophecy, causing investors to redeem their shares and forcing the fund to liquidate, which in turn will cause the remaining investors to receive less than their promised value. Stevens agrees with this assessment and feels his fiduciary duty is to all employees. Stevens should:
A)
tell investors he cannot give advice on the fund because of a conflict of interest.
B)
continue to recommend that new investors do not invest in the fund, but not advise existing investors to reduce their holdings.
C)
continue to recommend that new investors do not invest in the fund and existing investors reduce their holdings.
C
The employees to whom Stevens owes fiduciary duty are the ones who are seeking his advice, even if acting on that advice hurts other employees who might eventually become clients.q
- While on a business trip, John Hayes, CFA, found a notebook that had apparently been left in the waiting area of an airport. Hayes opened the notebook and read the title: Confidential: Level II CFA Examination. Before returning the notebook to CFA Institute, he made a copy and gave it to Linda Sacket, one of his firm’s analysts, who was a candidate for Level II of the CFA examination. Sacket read the questions and guideline answers before taking the Level II examination. According to the CFA Institute Standards of Professional Conduct:
A)
Sacket violated the Standards, but Hayes did not.
B)
both Hayes and Sacket violated the Standards.
C)
Hayes violated the Standards, but Sacket did not.
B
Both violated Standard VII(A) Conduct as Participants in CFA Institute Programs because they compromised the validity of the examinations.
- Nichole Zeller and Randy Toffler have both passed Level II of the CFA Exam Program and have registered for Level III. Zeller circulates a resume stating that she is a candidate for the CFA designation and has passed Level II of the CFA program. Toffler circulates a resume stating that he is a CFA II. Which of the following statements is CORRECT?
A)
Only Toffler has violated the Code of Standards.
B)
Only Zeller has violated the Code of Standards.
C)
Both Zeller and Toffler have violated the Code of Standards.
A
The Code and Standards permit an individual to state that he or she is a candidate for the CFA designation as long as the person is registered for the next CFA exam. The same individual may state the fact that he or she has passed Level I or II of the CFA program. There is no partial designation, such as CFA II.
Marion Klatt, CFA, is a representative for Thiel Financial Network. Klatt received a phone call at home from William Kind, a junior executive at Westtown Development Company, asking whether Klatt had heard that Westtown had just reached an agreement to acquire a major shopping mall chain at a very favorable price. (Klatt had not heard this news, and Klatt was able to confirm that the information had not yet been made public.) Kind requested that Klatt acquire 10,000 shares of Westtown for Kind’s personal account.
Klatt should:
A)
not acquire the shares until he has contacted Westtown’s management and encouraged them to publicly announce the merger discussion.
B)
not acquire the shares.
C)
not acquire the shares until the information is made public.
C Standard II(A) prohibits members from taking investment action if they possess material nonpublic information. Kind has a duty to keep information confidential that he acquired in the course of his duties at Westtown. The information is clearly material, so Klatt is not permitted to trade on it. Klatt should make reasonable efforts to achieve public dissemination of the information by contacting management and encouraging them to make the information public. Klatt may not trade on the information until it is made public.
- For the past 5 years, Karen Beckworth, CFA, has served as a proctor for the CFA exam. Beckworth tells her assistant, a Level III CFA candidate, that she normally receives the examinations on the Thursday before the exam. Given the low pass rate at Level III, Beckworth asks her assistant if he would like an advance copy of the next exam. Beckworth’s assistant declines the offer.
Beckworth’s assistant has been very vocal about expressing his opinions about the low pass rate. The assistant claims, “there are too many charterholders and CFA Institute is deliberately failing candidates because the prestige of the CFA charter is becoming diluted.”
With regard to Standard VII(A) Conduct as Participants in CFA Institute Programs, which of the following statements concerning Beckworth’s and her assistant’s behavior is most accurate?
A)
Both Beckworth and her assistant are in violation of Standard VII(A).
B)
Neither Beckworth nor her assistant is in violation of Standard VII(A).
C)
Beckworth is in violation of Standard VII(A), but her assistant is not in violation.
C
Beckworth is in violation of Standard VII(A), Conduct as Participants in CFA Institute Programs. Beckworth compromised the integrity of the exam by offering her assistant an advance copy. Beckworth’s assistant is allowed to express his opinion without violation of any Standards.
- A money management firm has the following policy concerning new recommendations: When a new recommendation is made, each portfolio manager estimates the likely transaction size for each of their clients. Clients are notified of the new recommendation in the order of their estimated transaction size-largest first. All clients have signed a form where they acknowledge and consent to this allocation procedure. With respect to Standard III(B), Fair Dealing, this is:
A)
a violation of the standard.
B)
not a violation because the clients are aware of the policy.
C)
not a violation because the clients have signed the consent form.
A
Such a policy is a violation of the Standard and client acknowledgement and/or consent does not change that fact.
- Anderson, Baker and Chang all received their CFA charters and ordered new business cards. Their business cards are as follows:
G. J. Anderson, CFA
B. K. Baker, Chartered Financial Analyst
M. S. Chang, C.F.A (C.F.A are larger than name)
Which of the business cards use the CFA marks improperly?
A) Baker and Chang. B) Anderson and Chang. C) Chang.
C
Consistent with Standard VII(B), members must use the CFA marks in a proper manner. Members may indicate “CFA” or “Chartered Financial Analyst” after their names, but the designation should not be given more prominence than that used in printing the name itself. Also, periods should not be used to separate the letters.
- A money manager is meeting with a prospect. She gives the client a list of stocks and says, “These are the winners I picked this past year for my clients. Their double-digit returns indicate the type of returns I can earn for you.” The list includes stocks the manager had picked for her clients, and each stock has listed with it an accurately measured return that exceeds 10%. Is this a violation of Standard III(D), Performance Presentation?
A)
No, because the manager had the historical information in writing.
B)
Yes, unless the positions listed constitute a complete presentation (i.e., there were no stocks omitted that did not perform in the double digits).
C)
Yes, because the manager cannot reveal historical returns of recent stock picks.
B Standard III(D) requires fair representations concerning past and potential future performance. Unless the list of the "winners" includes all the positions that the firm held, the manager is misrepresenting past performance. The following statement is questionable: "Their double-digit returns indicate the type of returns I can earn for you," but the action of submitting a partial list is clearly a violation. The manager should have information on past performance in writing.
- Janet Reilly has just approached Betty Miller, CFA, about purchasing 10,000 shares of Brookshire Co., a newly incorporated real estate development firm. Reilly is a retired schoolteacher living off the income from her late husband’s life insurance policy. This investment will represent a significant shift in her investment portfolio. Miller believes this trade is unsuitable with respect to Reilly’s investment policy statement. Consistent with the Standards, Miller should most appropriately:
A)
not accept the order, because it is not a suitable investment for Reilly.
B)
discuss with Reilly whether she wishes to update her investment policy statement.
C)
follow her firm’s procedures for obtaining Reilly’s approval to carry out the unsolicited trade request.
B
According to the guidance for Standard III(C) Suitability, a member who receives an unsolicited trade request that is not suitable for the client should discuss the trade with the client before carrying it out. The nature of this discussion depends on whether the trade has a material effect on the client’s portfolio. Because this trade will have a material effect, Miller’s most appropriate action is to discuss with the client whether this trade request reflects a change in her investment objectives and risk tolerance and thus whether she wishes to update her IPS.
- Paul Clark, CFA, has just learned from a financial analyst at Corvac Industries that orders for their core products are running ahead of last year’s orders by 15%, information that has not been publicly disclosed by the company. Clark currently has a hold rating on Corvac based on his expectation of a 5% increase in revenues for the current year. Based on Standard II(A) Material Non-public Information, Clark’s most appropriate course of action is to:
A)
disclose the information publicly prior to making any changes in his recommendation.
B)
encourage Corvac to publicly release the order information and not act on that information until it is publicly disclosed.
C)
put Corvac on his firm’s restricted list and not make a recommendation until the increase in orders is publicly disclosed.
B (first time picked C)
The Standard recommends that an analyst who possesses material non-public information encourage the company to release the information publicly. The Standards prohibit Clark from acting on the information until it is publicly disclosed. Since the information is only known by Clark, putting it on a restricted list is not necessary. Public disclosure of material non-public information by an analyst would likely be considered a violation of the Standard.
* when to put on restricted list
- Analysts who undertake an independent consulting practice while employed must get permission from their employer and should disclose all of the following EXCEPT:
A)
the clients contact information.
B)
the compensation or benefit to be received.
C)
the anticipated duration of the service to be rendered.
A
The Member or Candidate is not required to disclose confidential information about his independent clients.
- The following scenarios refer to recommendations made by two analysts.
Jean King, CFA, is a quantitative analyst at Quantlogic, Inc. King uses computer-generated screens to differentiate value and growth stocks based on accounting numbers such as sales, cash flow, earnings, and book value. Based on her analysis of all domestically traded stocks in the U.S. over the past year, King concludes that value stocks as a class have underperformed growth stocks over that period. Using only this analysis, she recommends that account executives at Quantlogic sell all value stocks from the portfolios for which they have discretionary authority to trade and replace these stocks with growth stocks. James Capelli, CFA, is a fundamental analyst at Wheaton Capital Management, which focuses on regional stocks. His analysis of Branson Wireless includes the investment's basic characteristics such as information about historical earnings, ownership of assets, outstanding contracts, and other business factors. In addition to conducting both a general industry analysis and a company financial analysis, Capelli interviews key executives at Branson. Based on his analysis, he concludes that the company's future prospects are strong and issues a "buy" recommendation. According to CFA Institute Standards of Professional Conduct, did King and Capelli have a reasonable and adequate basis for making their recommendations?
A)
Both King and Capelli have a reasonable basis for their recommendations.
B)
Capelli has a reasonable basis for his recommendation, but King does not.
C)
King has a reasonable basis for his recommendation, but Capelli does not.
B
Capelli appears to have exercised diligence and thoroughness in making his recommendation. King’s recommendation is not based on thorough quantitative work because the period used in her study is only one year. Also, her recommendation does not consider the client’s specific needs and circumstances.
Question From: Session 1 > Reading 3-V > LOS (A)
- Theresa Hatcher, CFA, is making arrangements to establish her own investment advisory business before terminating her relationship with her current employer, Elite Brokers, Inc. Elite is a small company consisting of only six investment professionals and a small support staff. According to CFA Institute Standards of Professional Conduct, which of the following activities is least likely a violation of Hatcher’s duty to Elite?
A)
Hatcher leases office space, furniture, and other equipment for her new business.
B)
Hatcher solicits Elite’s clients before her termination of employment at Elite.
C)
Hatcher engages in secret negotiations with two other investment professionals and her administrative assistant to leave Elite in order to join her new business.
A
Standard IV(A) permits Hatcher to make preparations to begin a new practice, such as leasing office space, furniture, and other equipment, but not to engage in the other activities that may violate her duty to employer.
- Don Roberts, a CFA Institute member, resides in Country L, where the securities laws and regulations are less strict than the CFA Institute Code and Standards. Roberts also does business in Country N, which has no securities laws or regulations. Thus, Country N has no laws prohibiting the use of material nonpublic information. Roberts has clients in both Country L and N. Country L’s law states that the law of the locality where business is conducted governs. According to CFA Institute Standards of Professional Conduct about the use of material nonpublic information, Roberts may:
A)
not take investment action on the basis of this information.
B)
take investment action based on this information only for his clients in Country N but not for his clients in Country L or himself.
C)
take investment action based on this information for clients in both Country N and Country L and for himself.
A
Because applicable law states that the law of the locality where the business is conducted governs and local law is less strict than the Code and Standards, the member must adhere to the Code and Standards. Standard II(A) prohibits the use of material nonpublic information.
- Martin Tripp, CFA, is vice-president of the equity department at Walker Financial, a large money management firm. Of the twenty analysts in his department for whom he has supervisory responsibility, eight are subject to CFA Institute Standards of Professional Conduct. Tripp believes that he cannot personally evaluate the conduct of the twenty analysts on a continuing basis. Therefore, he plans to delegate some of his supervisory duties to Sarah Green, who is subject to the Standards, and some to Bob Brown, who is not subject to the Standards. According to CFA Institute Standards of Professional Conduct, which of the following statements about Tripp’s ability to delegate supervisory duties is most accurate?
A)
Tripp may not delegate any of his supervisory duties to either Green or Brown.
B)
Tripp may delegate some or all of his supervisory duties to Brown, even though Brown is not subject to the Standards.
C)
Tripp may delegate some or all of his supervisory duties only to Green because she is subject to the Standards.
B Standard IV(C) Responsibilities of Supervisors permits Tripp to delegate supervisory duties to Green, Brown, or both, but such delegation does not relieve Tripp of his supervisory responsibility. *delegate does NOT mean release of responsibility, so it doesn't have to be CFA (that takes some of the tasks)
- According to CFA Institute Standards of Professional Conduct, which of the following statements about the prohibition against plagiarism is most correct? The prohibition against plagiarism applies to _______
(how many areas and what are they)
original question options:
1) written material only
2) written material, oral communications, and telecommunications
3) written material and oral communications only
Answer is B
- Joan Platt, CFA, operates an investment advisory service in New York but maintains an office in Xania. Xania recently established a stock market, which is not very efficient. None of the Xanian stocks trade in the U.S. market. Xania legally permits the use of material inside information. Platt believes that using inside information would help her compete against other Xanian investment advisors and also help some of her Xanian clients reach their investment objectives. Platt is considering adopting local investment practices in Xania. According to CFA Institute Standards of Professional Conduct, Platt may:
A)
use material inside information, but only after notifying CFA Institute.
B)
not use material inside information.
C)
use material inside information because Xania legally permits this practice.
B
Because applicable law involving material inside information is less strict than the Code and Standards, Platt must adhere to the Code and Standards. Standard II(A) prohibits against use of material nonpublic information.
- Arthur Harrow, CFA, is a pharmaceuticals analyst at Dominion Asset Management. His supervisor directs him to prepare separate research reports on Miracle Drug Company and Wonder Drug Company. Harrow serves on the board of Miracle and owns 2000 shares of Wonder, which is currently trading at $25 per share. According to CFA Institute Standards of Professional Conduct, which of the following actions, if any, is Harrow required to take if he writes the research reports?
A)
Harrow must disclose to Dominion his relationship with Miracle but not his ownership of shares in Wonder.
B)
Harrow must disclose to Dominion both his relationship with Miracle and his ownership of shares in Wonder.
C)
Harrow must disclose to Dominion his ownership of shares in Wonder but not his relationship with Miracle.
B Standard VI(A) requires that Harrow disclose to Dominion conflicts that reasonably could be expected to interfere with his independence and objectivity. Both Harrow's relationship with Miracle and his ownership of a substantial dollar amount of Wonder's shares represent potential conflicts of interest and must be disclosed prominently and in clear language in the research report, giving clients the ability to weigh the possible effects of these potential conflicts on his analysis and conclusions.
- All of the following are required by fiduciaries under Standard III(A), Loyalty, Prudence, and Care, EXCEPT:
A)
support the sponsor’s management during proxy fights.
B)
place the client’s interest before the employer’s interest.
C)
act solely in the interest of the ultimate beneficiaries.
A
Members are required to act in the interest of their clients. In voting proxies, the client’s interest must prevail over management’s interest.
Question From: Session 1 > Reading 3-III > LOS (A)
first time picked B
- Lee Hurst, CFA, is an equity research analyst who has recently left a large firm to start independent practice. He is able to re-create several of his previous recommendation reports, based on his clear recollection of supporting documentation he compiled at his previous employer. He publishes the reports and obtains several new clients. Hurst is most likely:
A)
in violation of Standard V(A) Diligence and Reasonable Basis.
B)
in violation of Standard V(C) Record Retention.
C)
not in violation of any Standard.
B
Hurst is most likely in violation of Standard V(C) Record Retention because the supporting documentation is unavailable. He needs to recreate the supporting records based on information gathered through public sources or the covered company. He may have a reasonable basis for his recommendations and have been diligent in his analysis, but must reconstruct the records of this analysis before issuing the reports.
*recollection of supporting files he compiled at his previous employer = stealing records. Doesn’t have to be a flash drive or written down
- Sue Parsons, CFA, works full-time as an investment advisor for the Malloy Group, an asset management firm. To help pay for her children’s college expenses, Parsons wants to engage in independent practice in which she would advise individual clients on their portfolios. She would conduct these investment activities only on weekends. She is currently only in the preparation stage and has not started independent practice yet. Which of the following statements about Standard IV(A), Loyalty to Employer, is most accurate? Standard IV(A):
A)
requires Parsons to notify Malloy in writing about her intention to undertake an independent practice.
B)
does not require Parsons to notify Malloy of preparing to undertake independent practice under the current conditions.
C)
requires Parsons to obtain written consent from both Malloy and the persons from whom she undertakes independent practice.
B
Standard IV(A), Loyalty to Employer, requires that Parsons obtain written consent only from her employer before she undertakes independent practice that could result in compensation or other benefit in competition with Malloy. It is not required to get permission from your employer when only preparing to go into independent practice.
*no competition, no need to notify
Session 1 > Reading 3-IV > LOS (A)
*a little uncleared..
- Which of the following is NOT part of the CFA Institute Code of Ethics. Members of CFA Institute will:
A)
recommend investments that maximize returns for a given level of risk.
B)
use reasonable care and exercise independent professional judgment.
C)
strive to maintain and improve their competence and the competence of others in the profession.
A
Standard of Professional Conduct III(C), not the Code of Ethics, requires that investments be appropriate and suitable.
- Which of the following characteristics distinguishes a profession from an occupation? Members of a profession:
A) are better compensated for their services. B) abide by a code of ethics. C) view their work as a calling.
One of the defining characteristics of a profession according to the Level I CFA curriculum is that its members agree to abide by a common code of ethics.
- Brian Williams is a portfolio manager with Santo Capital and works on the Banks Company’s account. Santo has a policy against accepting gifts over $500 from clients. The Banks’ portfolio has a fantastic year, and in appreciation, a Banks manager sends Williams a rare bottle of wine that he estimates is worth $300. Williams must:
A)
return the bottle to the client.
B)
report the pension fund manager to the CFA Institute Professional Conduct Program.
C)
inform his supervisor in writing that he received additional compensation in the form of the wine.
C (picked A at first try, didn’t read thoroughly)
The Standards require that he inform his supervisor in writing about the gift.
- An analyst provides services for a charitable organization and in return gets free membership in the organization. Part of her job is to manage the liquid assets of the organization, and those assets include stocks. Her supervisor in the organization calls her and tells her to buy a certain stock for the portfolio based upon insider information from a board member in the organization. The analyst objects, but the supervisor says this is what they have always done and sees no reason for changing now. The analyst complies with the request. With respect to Standards IV(A), Loyalty to Employer, and II(A), Material Nonpublic Information, the analyst violated:
A)
only Standard II(A) that prohibits insider trading.
B)
only Standard IV(A) requiring duty of loyalty.
C)
both Standards IV(A) and II(A).
A
An employee/employer relationship does not necessarily mean monetary compensation for services. Complying with the request is a violation of II(A) which prohibits trading on insider information. Standard IV(A) Loyalty deals with going into business for yourself, leaving an employer and continuing to act in the employer’s best interest until their resignation becomes effective, and whistleblowing which means that the member’s interests and their firm’s interests are secondary to protecting the integrity of capital markets and the interests of the clients.
- Will Lambert, CFA, is a financial analyst for Offshore Investments. He is preparing a purchase recommendation on Burch Corporation for internal use. According to the CFA Institute Standards of Professional Conduct, which of the following statements about disclosure of conflicts is not required? Lambert would NOT need to disclose to his employer that:
A)
his wife owns 2,000 shares of Burch Corporation.
B)
he is a beneficiary of a pension plan of his former employer that owns a large number of shares of Burch’s stock.
C)
Offshore is an OTC market maker for Burch Corporation’s stock.
C Standard VI(A), Disclosure of Conflicts, requires members to disclose to their employer all matters, including beneficial ownership of securities, that reasonably could be expected to interfere with their duty to their employer or ability to make unbiased and objective recommendations. Disclosure of an employer's own involvement with the security is not necessary in this instance. If the report had been for external use, it would have been necessary to make all of the disclosures given as choices.
- If a CFA Institute member knows that a fellow member has violated the Code and Standards, according to Standard I(A) the member is:
A)
strongly encouraged to dissociate from the activity.
B)
required to report the activity.
C)
required to dissociate from the activity and strongly encouraged to report it.
C Standard I(A) does not require a CFA Institute member to report potential violations by others, but "strongly encourages members and candidates to report potential violations of the Code and Standards committed by fellow members and candidates."
- With respect to the professional conduct of a member or candidate, CFA Institute staff will consider a complaint from:
A)
anyone.
B)
only other members and candidates or professionals in the investment industry.
C)
only other members and candidates.
A
Complaints to the Professional Conduct Program may be filed by anyone.
- Greg Stiles, CFA, CAIA, is liquidating a large portion of a client’s portfolio because the client is planning to buy a vacation home. Stiles informs one of his colleagues at the firm that the client is looking for a vacation home, because the colleague’s wife is a licensed real estate broker. With respect to Standard III(E) Preservation of Confidentiality, this action:
A)
violates the Standard unless the client has given explicit permission to disclose his plans.
B)
does not violate the standards because he did not share the information outside the firm.
C)
Does not violate the standards because he did not disclose any details about the client’s portfolio or other financial resources.
A
According to Standard III(E) Preservation of Confidentiality, Stiles must keep client information confidential and limit the information to others in his firm that are involved in the work being performed for the client. The confidentiality standard applies to any information that a member has learned in the performance of his duties for the client.
- A manager has pointed out that his firm has experienced significant expansion over the past few years. Until recently, its Legal Department was responsible for the firm’s compliance activities. Now, however, the legal and compliance functions have been separated. A compliance officer has been formally designated and a comprehensive compliance program has been put in place.
In order to function effectively, the compliance officer must have the authority:
A)
which is consistent with the most senior partner or executive officer in the firm.
B)
to hire and fire personnel.
C)
to affect, control, and guide employee behavior and to respond to employee misconduct.
C
Compliance officers must be able to guide employee behavior and respond to employee misconduct, otherwise there will be no effective compliance procedures in place. Unless the compliance officer can effectuate compliance procedures, the compliance program has no chance of responding to or preventing violations of the Standards.
