SS 1. Ethical and Professional Standards

Question 1

List 3 practices discouraged by GIPS:

Answer 1

Representative accounts

Survivorship bias

Varying time periods of performance

Question 2

Who benefits most as a result of the establishment of Global Investment Performance Standards (GIPS) ?

Answer 2

The investing public and asset management firms

Question 3

What best describes the period for which GIPS compliance should be presented?

Answer 3

5 years, or since inception, whichever is shorter with an additional year to be added until 10 years of performance is established

Question 4

Andrew Jenkins has just been awarded the CFA charter. How should he present this on his business card?

Answer 4

Andrew Jenkins, CFA Charterholder

CFA should always be capitalized and shown without periods. Andrew Jenkins, CFA is also appropriate.

Question 5

The Standards of Professional Conduct explicitly outline responsibilities to five groups. What are they?

Answer 5

The profession

Employers

Clients

Prospects

The investing public

Question 6

Soft dollars are covered under which Standard?

Answer 6

III (A): Loyalty, Prudence and Care

Question 7

A firm that has been GIPS compliant since its inception, which was six years ago, should present their historic performance data for a minimum of:

Answer 7

Six years

The firm has been in existence for six years and so should show all years to date. After the current year the company should continue reporting each year’s performance until the company have presented a minimum of ten years.

Question 8

Give 4 reasons as to why GIPS are required:

Answer 8

Markets are becoming more integrated

Performance reporting varies wildly

It is difficult to compete when performance is not comparable

Investors lack confidence in the performance numbers as it is unclear how they are calculated

Question 9

‘An aggregation of one or more portfolios managed according to a similar investment mandate’ is the definition of:

Answer 9

A composite

Question 10

What best describes the CFA Institute’s view on third party verification of GIPS compliance?

Answer 10

Strongly recommended

Question 11

Firms are required to show at least ____ years of GIPS - compliant annual performance history

Answer 11

Five

Question 12

What is the correct compliance statement for GIPS?

Answer 12

X has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS)

Question 13

A discretionary fund manager of an equities fund invests new cash received in T-bills. Is this necessarily a breach of the Code and Standards?

Answer 13

No, as the T-bills may be a temporary investment

A discretionary equity fund manager can park funds in T-bills if he is attempting to enter the market at the best possible time. This is consistent with Standard III(A): Loyalty, Prudence and Care.

Question 14

GIPS stands for?

Answer 14

Global Investment Performance Standards

Question 15

What are the 9 major sections of GIPS?

Answer 15

0. Fundamentals of compliance
1. Input data
2. Calculation methodology
3. Composite construction
4. Disclosures
5. Presentation and reporting
6. Real estate
7. Private equity
8. Wrap fee/Separately Manage Account (SMA) portfolios

Question 16

Selective disclosure occurs when:

Answer 16

companies discriminate in making material nonpublic information public.

Question 17

In the event of a discrepancy between the official GIPS standards and the local language translation, the official governing language is:

Answer 17

English

Question 18

Sanctions imposed by CFA Institute include:

Answer 18

public censure, suspension of membership and use of the CFA designation, and revocation of the CFA charter

Question 19

Ensuring that a country’s interests are taken into account when effectively implementing the GIPSstandards on a country-wide basis most likely relies on which entities?

Answer 19

A local sponsoring organization