Ethics Topics to Work On
Which of the following regarding GIPS compliance is correct? A. Asset owners that manage assets can claim compliance with the GIPS standards B. Software that Calculates performance in a manner consistent with the GIPS standards can claim compliance with GIPS standards C. Firms can comply with the GIPS standards by limiting their compliance claims to the provisions they have chosen to follow
ANSWER: A. Asset owners that manage assets can claim compliance with the GIPS standards *STUDY GIPS
GIPS least likely requires that: A. firms must provide compliant presentation to all prospective clients B. discontinued composites must be included in the composite list for at least 5 years C. the firm must perform its own verification that it has complied with all the GIPS requirements
ANSWER: C. the firm must perform its own verification that it has complied with all the GIPS requirements
Which of the following statements is most accurate regarding members and candidates responsibilities when local law differs from CFA Institute's Code and Standards? A. In the absence of any significant local laws, the Code and Standards apply B. When local law differs from the Code and Standards, members must apply the local law C. When local law differs from the Code and Standards, members must apply the Code and Standards
Answer: A. In the absence of any significant local laws, the Code and Standards apply
Peter Chan, CFA, a strong believer in astrology, often consults his favorite astrologer, who has a reputation of giving accurate predictions for stock prices. The astrologer tells Chan to buy shares of Kim Industries and that the company will soon be taken over by a larger rival. Chan buys the shares for his personal account. He also tells his friend Michael Wong, an analyst about the stock tip. Wong issues a "Buy" recommendation on Kim industries and states that Kim is a likely takeover target. Two weeks later, Kim Industries recieves an offer from a larger rival for a 100% takeover and its stock price increases 50%. Which of the following is most accurate? A. Only Chan violated the Code and Standards B. Only Wong violated the Code and Standards C. Both Wong and Chan violated the Code of Standards
Answer: B. Only Wong violated the Code and Standards *Wong clearly violated Standard V(A) Dilligence and Reasonable Basis by not excersizing dilligence, independence, and thoroughness in making investment recommendations. Nothing in the Standards precludes Chan from relying on astrology for his personal investments.
If a member is disillusioned with her current employer, which of the following actions is least appropriate under the CFA Institute's Code and Standards? A. Organizing a management buyout of the firm B. Planning to go into independent practice before informing her employer C. Taking copies of spreadsheets she prepared in her capacity as an analyst
Answer: C. Taking copies of spreadsheets she prepared in her capacity as an analyst *Standard IV(A) Loyalty prohibits members and candidates from taking any records that belong to the employer even if they were prepared by the member or candidate.
Wes Smith, CFA, refers many of his clients to Bill Towers, CFA, for accounting services. In return, Towers performs routine services for Smith, such as tax returns, for no charge. To comply with the Code of Standards, Towers must: A. discontinue his services for Smith B. disclose to prospects referred by Smith that he performs services for Smith C. disclose to prospects referred by Smith the estimated value of services he provides to Smith
Answer: C. disclose to prospects referred by Smith the estimated value of services he provides to Smith *Standard VI(C) Referral Fees
Which of the following actions, if not disclosed, is most likely to violate the Standard concerning performance presentation? An investment firm: A. presents investment performance using composites of similar portfolios B. includes terminated portfolios as part of the historical performance results, which makes the performance results look better. C. includes a 10-year performance history in its marketing brochure, which includes two years of simulated results and eight years of actual performance
Answer: C. includes a 10-year performance history in its marketing brochure, which includes two years of simulated results and eight years of actual performance *If simulated results are included in performance history, a firm needs to disclose that. Standard III(D) Performance Presentation requires terminated portfolios to be included in historical performance. In addition, when presenting performance, it should be based on the performance of the weighted composite of similar portfolios.
Least likely to be explicitly stated in the CFA Institute's Code of Ethics? - Uphold capital market rules - Maintain knowledge of applicable laws - Maintain and improve professional competence
Maintain knowledge of applicable laws *this is included in Standard I(A) Knowledge of the Law
Mary Tse, CFA, works as an analyst at an international securities firm. In her spare time, she also teaches finance courses at a local university. She receives compensation from the university for her teaching. She does not inform the firm of her teaching activities. Is Tse violating the Code and Standards?
No *Standard IV(A) Additional Compensation and Arrangements applies to outside activity that competes or creates conflict with the employer. If Tse's teaching requires a time commitment that may interfere with her analyst duties, she may want to discuss with her employer to ensure she remains in compliance with the Standard.
To comply with the requirements of the Standard concerning knowledge of the law, members and candidates are least likely required to: - Learn the applicable laws and regulations - Dissociate from illegal or unethical activity - Report violations to the relevant authorities
Report violations to the relevant authorities *Standard I(A) Knowledge of the Law does not require reporting activity to the relevant authorities, although there may be instances where the law may require this.
A professions code of ethics will most likely
communicate the shared principles and expected behavior of members *it can NOT guarantee a level of behavior from members or service to clients*
Danny Jefferson is a portfolio manager who is being sued by one of his clients for inappropriate investment advice. Jefferson settles out of court with the client. When investigated by the Professional Conduct Program (PCP) of CFA Institute, Jefferson discloses confidential information about the settlement and the client to PCP. Jefferson:
did not violate the Code of Standards
Unez Airlines publicly guides analysts that it is comfortable with a projected earnings per share of $3.10 for the final quarter. The consensus forecast puts Unez's EPS at $3.15. Iago Rubin, CFA, an analyst at Fargus Investments, believes Unez's management has underestimated earnings so the announcement of actual EPS will cause a surge in the stock price. Among the more knowledgable analysts, the earnings projection is said to be $4.00 per share. Rubin puts the $3.10 estimate in a research report that he distributes to all clients of Fargus, but privately discusses the $4.00 estimate with the larger institutional clients of Fargus. Rubin has most likely violated the Standard related to:
fair dealing, by discussing the higher estimate with larger institutional investors. *by not sharing this info with all clients, he is not treating all clients fairly.
Bob Smith, CFA, is an unpaid, non-executive board member of Atlantic Technologies. Smith discovers that Atlantic has inappropriately accelerated the recognition of contract revenues to achieve desired quarterly financial results. Smith consults the firm's legal counsel and confirms that this conduct is illegal. Smith urges the board of directors to restate the financial statements, but they decide not to do so. According to the CFA Institute's Standards of Professional Conduct, Smith:
should promptly dissociate himself from Atlantic's actions by resigning as a director
Mel Avid, CFA, directs a significant amount of its commission-related business to Ezekiel Brokerage. In return for business given, Ezekiel pays for new office furniture for Avid. Avid has:
violated the Standard concerning loyalty, prudence and care *he used the client brokerage to obtain services that do not benefit his clients