Vol. 6 LM2 Code of Ethics

Question 1

document

provides guidance to the people who grapple with real ethical dilemmas in the investment profession on a daily basis

p 293

Answer 1

Standards of Practice Handbook

Question 2

Describe

Code of Ethics of the Handbook

p 294

Answer 2

The Code contains high-level aspirational ethical principles that drive members and candidates to create a positive and reputable investment profession

Question 3

The Standards of Professional Conduct contain …

p 294

Answer 3

practical ethical principles of conduct that members and members and candidates must follow to achieve the broader industry expectations

Question 4

In 1992, CFA Institute added the standard addressing …

p 294

Answer 4

performance presentation to the existing list of standards

Question 5

Concept

is the fundamental element of the ethics education effort of CFA Institute

p 294

Answer 5

Standards of Practice Handbook

Question 6

Concept

examples in this section are meant to illustrate how the standard applies to hypothetical but factual situations

p 294

Answer 6

“Application of the Standard” sections

Question 7

CFA Institute

Mission

p 295

Answer 7

To lead the investment profession globally by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society

Question 8

CFA Institute

New Standard Regarding Responsibilties of Supervisors [IV(C)]

p 296

Answer 8

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.

Question 9

Standard for Communication with Clients and

Prospective Clients [V(B)]

Given the constant development of new and exotic financial instruments and strategies, the standard regarding communicating with clients now includes

p 296

Answer 9

• an implicit requirement to discuss the risks and limitations of recommendations being made to clients.
• The new principle and related guidance take into account the fact that levels of disclosure will differ between products and services.

Question 10

CFA Institute

Standard VII(A)

p 296

Answer 10

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 CFA Institute programs.

Question 11

Concept

This program in conjunction with this body is responsible for enforcement of the Code and Standards

p 297

Answer 11

Professional Conduct Program (PCP) in conjunction with the Disciplinary Review Committee (DRC)

Question 12

Concept

is a volunteer committee of CFA charterholders who serve on panels to review conduct and partner with Professional Conduct

p 297

Answer 12

Disciplinary Review Committee

Question 13

Describe

Asset Manage Code of Professional Conduct

p 298

Answer 13

is designed, in part, to help asset managers comply with the regulations mandating codes of ethics for investment advisers

Question 14

How do the Code and Standards, and the Asset Manager Code

p 298

Answer 14

• Code and Standards are aimed at individuals
• Asset Manager Code is aimed at investment firms

Question 15

List

Asset Manager Code provides practical guidelines for asset managers in six areas

p 298

Answer 15

1. loyalty to clients
2. investment process
3. trading
4. compliance
5. performance evaluation
6. disclosure

Question 16

Describe

Standards of Practice Council (SPC)

p 298

Answer 16

a group consisting of CFA charterholder volunteers from many different countries, is charged with maintaining and the interpreting the Code and Standards and ensuring that they are effective

Question 17

List

The SPC continually evaluates the Code and Standards to ensure that they have these qualities

p 299

Answer 17

• representative of high standards of professional conduct
• relevant to the changing nature of the investment profession
• globally applicable
• sufficiently comprehensive, practical and specific
• enforceable
• testable for the CFA Program

Question 18

Standards of Professional Conduct

domains of professionalism

p 304

Answer 18

• knowledge of the law
• independence and objectivity
• misrepresentation
• misconduct

Question 19

Standard of Professional Conduct

domains of Integrity of Capital Markets

p 305

Answer 19

• Material Nonpublic Information
• Market Manipulation

Question 20

Standard of Professional Conduct

domains Duties to Clients

p 305

Answer 20

• Loyalty, Prudence, and Care
• Fair Dealing
• Suitability
• Performance Presentation
• Preservation of Confidentiality

Question 21

Suitability

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

p 305

Answer 21

1. 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
2. Determine that an investment is suitable to the client’s financial situation and consistent with the client’s written objectives, mandates and constraints
3. Judge the suitability of investmenets in the context of the client’s total portfolio

Question 22

Preservation of Confidentiality

Members and Candidates must keep information about current, former, and prospective clients confidential unless:

p 306

Answer 22

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

Question 23

Standard of Professional Conduct

domains of Duties to Employers

p 306

Answer 23

1. Loyalty
2. Additional Compensation Arrangements
3. Responsibilities of Supervisors

Question 24

Which section of Code of Ethics

diligence and reasonable basis

p 306

Answer 24

Section V. Investment Analysis, Recommendations, and Actions

Question 25

# Which section of the Code of Ethics 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. | p 306

Answer 25

Section IV. Duties to Employers

Question 26

# Which section of the Code of Ethics 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. | p 306

Answer 26

Section IV. Duties to Employers

Question 27

# Which section of the Code of Ethics 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 informa- tion, or otherwise cause harm to their employer. | P 306

Answer 27

Section IV. Duties to Employers

Question 28

# Which section of the Code of Ethics E. 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, | p 306

Answer 28

Section III.E Duties to Clients - Preservation of Confidentiality

Question 29

# Which section of the Code of Ethics Members and Candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommen- dations, taking investment action, or engaging in other professional activities. | p 305

Answer 29

Section III.C Duties to Clients - Suitability

Question 30

# Which section of the Code of Ethics Judge the suitability of investments in the context of the client’s total portfolio. | p 305

Answer 30

Section III.C Duties to Clients - Suitability

Question 31

# Describe Additional Requirement under the Standard for Communication with Clients and Prospective Clients [V(B)] | p 296

Answer 31

Disclose to clients and prospective clients significant limitations and risks associated with the investment process.

Question 32

# What happens next? When an inquiry is initiated | p 297

Answer 32

the Professional Conduct staff conducts an investigation that may include requesting a written explanation from the member or candidate; interviewing the member or candidate, complaining parties, and third parties; and collecting documents and records relevant to the investigation.