Standards of Professional Conduct (7 Standards)

Question 1

1.) 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
a.) For differing laws, member must abide by the strictest applicable law
2.) In the event of conflict, Members and Candidates must comply with the stricter law, rule, or regulation
3.) Members and Candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations

Answer 1

I: A
Professionalism: knowledge of law

Question 2

1.) Use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities.
2.) 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
a.) Gifts are acceptable, as long as they are disclosed to employer
b.) Allows issuer-paid research as long as the analysis is thorough, independent, unbiased, and has a reasonable and adequate basis for its conclusions, and the compensation from the issuer is disclosed
c.) Consider the potential for conflicts of interest inherent in credit ratings and may need to do independent research to evaluate the soundness of these ratings

Answer 2

I:B
Professionalism: Independence & Objectivity

Question 3

1.) Must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities
2.) Members must cite sources of information, unless the info is factual data from a recognized financial or statistical reporting service

Answer 3

I:C
Professionalism: Misrepresentation

Question 4

1.) Do not engage in conduct of dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence
a.) Members must not try to use enforcement of this Standard against another member to settle personal, political, or other disputes that are not related to professional ethics or competence
b.) Acts committed outside the professional capacity are misconduct if they reflect poorly on a member’s honesty, integrity, or competence

Answer 4

I:D
Professionalism: Misconduct

Question 5

1.) When in possession of material nonpublic information that could affect the value of an investment, member must not act or cause others to act on the information

Answer 5

II: A
Integrity of Capital Markets: Material Nonpublic Information

Question 6

1.) Do not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants

Answer 6

II: B
Integrity of Capital Markets: Market manipulation

Question 7

1.) Duty of loyalty to clients and must act with reasonable care and exercise prudent judgment
2.) Must act for the benefit of their clients and place their clients interests before their employer’s or their own

Answer 7

III: A
Duties to Clients: Loyalty, Produce, Care

Question 8

1.) Deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities

Answer 8

III: B
Duties to Clients: Fair Dealing

Question 9

1.) Advisory relationship between member and client, Members must:
*Have a full understanding of investment experience, risk, return objectives, financial constraints prior to making recommendations
* Determine that an investment is suitable for client’s need based on written objectives
*Judge the sustainability of investments in the context of the 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 9

III: C
Duties to Clients: Suitability

Question 10

1.) Fair, accurate, and complete performance information must be communicated to the client

Answer 10

III: D
Duties to Client: Performance Presentation

Question 11

1.) Client information is confidential unless circumstance of legal action permits or client gives approval, for current, former, and prospective clients

Answer 11

III: E
Duties to Clients: Confidentiality

Question 12

1.) Act in the benefit of their employer and not deprive them of the advantage of their skills and abilities, divulge confidential information or cause harm to their employer

Answer 12

IV: A
Duties to Employers: Loyalty

Question 13

1.) Must not accept gifts, benefits, compensation, that could create a conflict of interest with their employer, unless they obtain written content from all parties involved

Answer 13

IV: B
Duties to Employer: Additional Compensation Arrangements

Question 14

1.) Make reasonable efforts that anyone under their supervision or authority complies with laws and code of standards

Answer 14

IV: C
Duties to Employers: Responsibilities of Supervisors

Question 15

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 all analysis, recommendation, and action

Answer 15

V: A
Investment Analysis, Recommendations, and Actions: Diligence and reasonable basis

Question 16

1.) Disclose to client the format and general principles of the investment process and strategies they use
2.) Disclose to client significant limitations and risk associated with the investment process and actions
3.) Use reasonable judgement in identifying which factors are important to analysis, recommendation, or actions
4.) Distinguish fact vs opinion

Answer 16

V:B
Investment Analysis, Recommendations, and Actions: Communication with clients and prospective clients

Question 17

1.) Develop and maintain appropriate records to support their investment analysis, recommendations, actions, and other investment-related communications with clients and prospective clients

Answer 17

V: C
Investment Analysis, Recommendations, and Actions: Record Retention

Question 18

1.) Full and fair disclosureof 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
2.) Disclosures must be prominent, delivered in plain language, and communicate relevant information effectively to clients, prospects, and employer

Answer 18

VI: A
Conflicts of Interest: Disclosure of Conflicts

Question 19

1.) Investment transactions for clients and employers must have priority over investment transactions in which a member or candidate is the beneficial owner

Answer 19

VI: B
Conflicts of Interest: Priority of transactions

Question 20

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

Answer 20

VI: C
Conflicts of Interest: Referral Fees

Question 21

1.) Members/candidates must not engage in any conduct that compromises the reputation or integrity, validity, or security of CFA institute

Answer 21

VII: A
Responsibilities as a CFA Institute Member or CFA Candidate: Conduct as participants in the CFA institute programs:

Question 22

1.) Do not misrepresent or exaggerate the meaning or implications of membership

Answer 22

VII: B
Responsibilities as a CFA Institute Member or CFA Candidate: Reference to CFA institute, CFA designation, and the CFA program: