Standards of Professional Conduct

Question 1

Standards of Professional Conduct (7)

Answer 1

Standard I: Professionalism
Standard II: Integrity of Capital Markets
Standard III: Duties to Clients
Standard IV: Duties to Employers
Standard V: Investment Analysis, Recommendations, and Actions
Standard VI: Conflicts of Interest
Standard VII: Responsibilities as a CFA Institute Member or CFA Candidate

Question 2

Standard I (4)

Answer 2

Standard I(A) Knowledge of the Law
Standard I(B) Independence and Objectivity
Standard I(C) Misrepresentation
Standard I(D) Misconduct

Question 3

Standard II (2)

Answer 3

Standard II(A) Material Nonpublic Information
Standard II(B) Market Manipulation

Question 4

Standard III (5)

Answer 4

Standard III(A) Loyalty, Prudence, and Care
Standard III(B) Fair Dealing
Standard III(C) Suitability
Standard III(D) Performance Presentation
Standard III(E) Preservation of Confidentiality

Question 5

Standard IV (3)

Answer 5

Standard IV(A) Loyalty
Standard IV(B) Additional Compensation Arrangements
Standard IV(C) Responsibilities of Supervisors

Question 6

Standard V (3)

Answer 6

Standard V(A) Diligence and Reasonable Basis
Standard V(B) Communication with Clients and Prospective Clients
Standard V(C) Record Retention

Question 7

Standard VI (3)

Answer 7

Standard VI(A) Disclosure of Conflicts
Standard VI(B) Priority of Transactions
Standard VI(C) Referral Fees

Question 8

Standard VII (2)

Answer 8

Standard VII(A) Conduct as Participants in CFA Institute Programs
Standard VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program

Question 9

Members and Candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities.

In the event of conflict, Members and Candidates must comply with the more strict law, rule, or regulation.

Members and Candidates must not knowingly participate
or assist in and must dissociate from any violation of such laws, rules, or regulations.

Answer 9

Standard I(A) Knowledge of the Law

Question 10

Members and Candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities.

Members and Candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another’s independence and objectivity.

Answer 10

Standard I(B) Independence and Objectivity

Question 11

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

Answer 11

Standard I(C) Misrepresentation

Question 12

Members and Candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.

Answer 12

Standard I(D) Misconduct

Question 13

Members and Candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.

Answer 13

Standard II(A) Material Nonpublic Information

Question 14

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

Answer 14

Standard II(B) Market Manipulation

Question 15

Members and Candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment. Members and Candidates must act for the benefit of their clients and place their clients’ interests before their employer’s or their own interests.

Answer 15

Standard III(A) Loyalty, Prudence, and Care

Question 16

Members and Candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities.

Answer 16

Standard III(B) Fair Dealing

Question 17

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

a. Make a reasonable inquiry into a client’s or prospective
client’s investment experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this information regularly.

b. Determine that an investment is suitable to the client’s financial situation and consistent with the client’s written objectives, mandates, and constraints before making an investment recommendation or taking investment action.

c. Judge the suitability of investments in the context of the client’s total portfolio.

2. When Members and Candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must make only investment recommendations or take only investment actions that are consistent with the stated objectives and constraints of the portfolio.

Answer 17

Standard III(C) Suitability

Question 18

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

Answer 18

Standard III(D) Performance Presentation

Question 19

Members and Candidates must keep information about current, former, and prospective clients confidential unless:
1. The information concerns illegal activities on the part of the client or prospective client,
2. Disclosure is required by law, or
3. The client or prospective client permits disclosure of the
information.

Answer 19

Standard III(E) Preservation of Confidentiality

Question 20

In matters related to their employment, Members and
Candidates must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer.

Answer 20

Standard IV(A) Loyalty

Question 21

Members and Candidates must not accept gifts, benefits, compensation, or consideration that competes with or might reasonably be expected to create a conflict of interest with their employer’s interest unless they obtain written consent from all parties involved.

Answer 21

Standard IV(B) Additional Compensation Arrangements

Question 22

Members and Candidates must make reasonable efforts to ensure that anyone subject to their supervision or authority complies with applicable laws, rules, regulations, and the Code and Standards.

Answer 22

Standard IV(C) Responsibilities of Supervisors

Question 23

Members and Candidates must:
1. Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions.
2. Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action.

Answer 23

Standard V(A) Diligence and Reasonable Basis

Question 24

Members and Candidates must:
1. Disclose to clients and prospective clients the basic format and general principles of the investment processes they use to analyze investments, select securities, and construct portfolios and must promptly disclose any changes that might materially affect those processes.
2. Disclose to clients and prospective clients significant limitations and risks associated with the investment process.
3. Use reasonable judgment in identifying which factors are important to their investment analyses, recommendations, or actions and include those factors in communications with clients and prospective clients.
4. Distinguish between fact and opinion in the presentation of investment analysis and recommendations.

Answer 24

Standard V(B) Communication with Clients and Prospective Clients

Question 25

Members and Candidates must develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients.

Answer 25

Standard V(C) Record Retention

Question 26

Members and Candidates must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients, and employer. Members and Candidates must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively.

Answer 26

Standard VI(A) Disclosure of Conflicts

Question 27

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

Answer 27

Standard VI(B) Priority of Transactions

Question 28

Members and Candidates must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from or paid to others for the recommendation of products or services.

Answer 28

Standard VI(C) Referral Fees

Question 29

Members and Candidates must not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation or the integrity, validity, or security of the CFA Institute programs.

Answer 29

Standard VII(A) Conduct as Participants in CFA Institute Programs