Code of Ethics and Standards of Professional Conduct

Subparts - Standards VII - Responsibilities as a CFA Institute Member or CFA Candidate

A) Conduct as participants in CFA Institute Programs B) Reference to CFA Institute, the CFA Designation, and the CFA Program

Subparts - Standard V - Investment Analysis , Recommendations and Actions

A) Diligence and Reasonable basis B) Communication with Clients and Prospective Clients C) Record Retention

Subparts - Standard VI - Conflicts of Interests

A) Disclosure of conflicts B) Priority of Transactions C) Referral Fees

Subparts - Standard I - Professionalism

A) Knowledge of the Law B) Independence and Objectivitiy C) Misrepresentation D) Misconduct

Subparts - Standard III - Duties to Clients

A) Locality, Prudence, and Care B) Fair Dealing C) Suitability D) Performance Presentation E) Preservation of Confidentiality

Subparts - Standard IV - Duties to Employees

A) Loyalty B) Additional Compensation Arrangements C) Responsibilities of Supervisors

Subparts - Standard II - Integrity of Capital Markets

A) Material Nonpublic Information B) Market Manipulation

6 Components of code of ethics

Act with integrity, competence, diligence, and respect and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets. Place the integrity of the investment profession and the interests of clients above their own personal interests. Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities. Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession. Promote the integrity and viability of the global capital markets for the ultimate benefit of society. Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.

Standards IV B

Additional Compensation Arrangements - 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.

Standards VII A

Conduct as Participants in CFA Institute Programs - 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.

Two principles of Rules of Procedure for Proceedings Related to Professional Conduct

confidentiality of proceedings and fair process to the member/candidate

Recommendations to prevent violation of standard IV C include

- Enforce adequate compliance procedures - Implement compliance education and training - Establish appropriate incentive structure

Sanctions imposed by CFA institute

- Public censure - Suspension of membership and use of the CFA designation - Revocation of the CFA charter. - Suspended or prohibited from further participation in CFA Program if enrolled CFA Program

Professional conduct inquires comes from number of sources

- Self-disclosure via annual Professional Conduct Statement - Written complaints received by Conduct staff - Evidence of misconduct through public sources, such as media articles - Reports submitted by proctors detailing a candidates' conduct on exam day - Analysis on exam materials after the exam and monitoring of social media by CFA institute

Heidi Katz is a CFA candidate and an analyst at a pension consulting firm. Her father is a major shareholder and managing director at Saturn Partners, a large hedge fund. When assisting in an alternative manager search for a pension client, Katz plans to recommend Saturn's market-neutral strategy because she feels it meets all of the pension plan's criteria. Given this situation, the best course of action for Katz is to: A) not present this strategy to the client and recommend another strategy. B) disclose the potential conflict to the pension client when discussing this recommendation. C) disclose the potential conflict to her employer and follow their guidance regarding disclosure of her relationship to the client.

A is Correct because Standard VI(A) requires disclosure of conflicts but does not prohibit members from making recommendations as long as the potential conflicts are appropriately disclosed. ----- B is Incorrect because if Katz believes the Saturn strategy is the best available choice she can make this recommendation, but she must disclose the relationship with her father's fund. C is Incorrect because even if her employer guides Katz not to disclose a potential conflict, she must still disclose any reasonable influences on her objectivity when making a recommendation to a client or prospective client.

When Jefferson Piedmont, CFA, joined Branch Investing, Branch began using a quantitative stock selection model Piedmont had developed on his own personal time prior to his employment with Branch. One year later when Piedmont left the firm, he found the original copy of the model he had developed in a file at his home and presented it to his new employer, who immediately began using the model. According to the Standards of Practice Handbook, did Piedmont most likely violate any CFA Institute Standards of Professional Conduct? A) No B) Yes, because he misappropriated property now belonging to Branch C) Yes, because he failed to inform his new employer the model was the same one used by his previous employer

A is Correct because although departing employees may not take employer property when departing [Standard IV(A)-Duties to Employers (Loyalty)], the model Piedmont presented to his new employer was not Branch's property. It was created by Piedmont prior to his employment with Branch. The model was not created for Branch in the course of his employment, but was adopted by Branch. ----- B is Incorrect because the model Piedmont presented to his new employer was not Branch's property. It was created by Piedmont prior to his employment with Branch. C is Incorrect because the model was not created for Branch in the course of his employment, but was adopted by Branch.

Oni Erobo, CFA, the General Partner in a real estate development project, is responsible for completing the project within an 18-month period and within budget. Erobo will receive an equity stake of 20% in the project if it comes within budget. Concerned that project costs could escalate, the Limited Partners require Erobo to cap expenses at 15% above budget. Costs were within expectation up until the last month of construction when imported lighting fixture costs (accounting for roughly 5% of total costs) escalated by more than 50%. As a result, the overall return declined below the partners expected 35% ROI. Erobo did not inform the Limited Partners about the increased costs. Did Erobo most likely violate the CFA Code of Ethics and Standards of Professional Conduct? A) No B) Yes, because returns are lower than expected by the Partners C) Yes, because he did not disclose the increased costs to his Partners

A is Correct because no violation took place. Erobo was not required to inform the Limited Partners about the increase in lighting fixture cost as the increase would not cause the overall project cost to escalate higher than the 15% budget variance contingency agreed within the partnership. ----- B is Incorrect because Erobo did not make any promises regarding the return of the project. C is Incorrect because Erobo was not required to inform the Limited Partners regarding the increase in lighting fixture cost since the increase would not cause the overall project cost to escalate higher than the 15% budget variance agreed within the partnership allowing Erobo a 20% equity stake.

Which of the following statements related to requirements for the CFA Institute Standards of Professional Conduct Standard V(B)-Communication with Clients and Prospective Clients is least likely accurate? The standard requires members and candidates to: A) divulge the number of investment related personnel responsible for external communication. B) disclose the basic format and general principles of the investment process. C) distinguish between fact and opinion in the presentation of investment analysis and recommendations.

A is Correct because the CFA Institute Standards of Professional Conduct Standard V(B)-Communication with Clients and Prospective Clients does not limit the type or number of staff responsible for external communication. ----- B is Incorrect because disclosure of the basic format and general principles of the investment process is a requirement. C is Incorrect because distinguishing between fact and opinion in the presentation of investment analysis and recommendations is a requirement.

When can a party, nonmember or firm, most likely claim compliance with the CFA Institute Code of Ethics and Standards of Professional Conduct? Once they have: A) ensured that their code and ethics meets the principles of the Code and Standards. B) notified the CFA Institute of their claim. C) verified their claim of compliance with the CFA Institute.

A is Correct because the Code and Standards apply to individual members of CFA Institute and candidates in the CFA Program. CFA Institute does encourage firms to adopt the Code and Standards, however, as part of their code of ethics. Those who claim compliance should fully understand the requirements of each of the principles of the Code and Standard. ----- B is Incorrect because CFA Institute welcomes public acknowledgement when appropriate and encourages firms to notify the Institute of the adoption plans. C is Incorrect because CFA Institute does not verify claims of compliance with the Code of Ethics and Standards of Professional Conduct.

Hui Chen, CFA, develops marketing materials for an investment fund he founded three years ago. The materials show the 3-year, 2-year, and 1-year returns for the fund. He includes a footnote that states in small print "Past performance does not guarantee future returns." He does not claim compliance with the GIPS® standards in the disclosures or footnotes. He also includes a separate sheet showing the most recent semi-annual and quarterly returns, which notes that they have been neither audited nor verified. Has Chen most likely violated any CFA Institute Standards of Professional Conduct? A) No B) Yes, because he included un-audited and unverified results C) Yes, because he did not adhere to the GIPS standards

A is Correct because the Standards require members to make reasonable efforts to make sure performance information is fair, accurate, and complete. The Standards do not require compliance with Global Investment Performance Standards (GIPS), auditing, or verification requirements [Standard III(D)]. ----- B is Incorrect because the Standards do not require that results be audited or verified unless claiming compliance with GIPS. C is Incorrect because the Standards do not require compliance with GIPS

Which of the following is most likely found in the CFA Institute Standards of Professional Conduct, Standard I-Professionalism? Members and candidates must: A) 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. B) place the integrity of the investment profession and the interest of clients above their own interest. C) maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.

A is Correct because the statement, "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" can be found in the CFA Institute Standards of Professional Conduct, Standard I-Professionalism (D) Misconduct. ----- B is Incorrect because the statement, "Members and Candidates must place the integrity of the investment profession and the interest of clients above their own interest" can be found in the CFA Institute Code of Ethics. It is not part of the CFA Institute Standards of Professional Conduct, Standard I-Professionalism. C is Incorrect because the statement, "Members and Candidates must maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals" can be found in the CFA Institute Code of Ethics. It is not part of the CFA Institute Standards of Professional Conduct, Standard I-Professionalism.

Kevin Tomey, CFA, is a research analyst covering the mining sector for a major investment bank. Most of the companies Tomey covers have facilities in remote locations. As part of his research of Astralica Minerals, he accepts the company's offer to fly with some of its executives on a plane that it has chartered due to the lack of any commercial flights to the location of its facility. During the course of his two-day visit, Tomey stays at the company's custom-built lodgings and attends a dinner with the executives who accompanied him on the charter flight. Neither Tomey personally or his firm reimburses Astralica for the costs associated with his travel and accommodation. Has Tomey most likely violated the Standards? A: No B: Yes, by dining with Astralica executives C: Yes, by accepting the travel and accommodation

A is correct. According to Standard I(B) - Independence and Objectivity, 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." However, this Standard does not prohibit acceptance of travel and accommodation in certain circumstances. Specifically, the guidance for this Standard tells us that, in the absence of commercial alternatives, "members and candidates may accept modestly arranged travel to participate in appropriate information-gathering events, such as a property tour." In this example, Tomey does not appear to have foregone any commercial alternative travel or accommodation in order to accept the company's offer. Additionally, he does not violate this Standard by dining with company executives as there is no indication that he has accepted a lavish or extraordinary meal.

Robert Choi, CFA, works for Challenger Asset Management, which offers its clients ten emerging market equity funds. All ten funds had negative five-year returns, although each has outperformed its benchmark. Choi approves an advertisement that includes a statement that the company's funds have provided investors with "positive excess returns" for investors seeking exposure to these markets. Each fund's five-year returns are presented alongside the returns of their relevant benchmark and a website where potential clients can obtain more detailed information is listed. Has Choi most likely violated the Standards? A: No B: Yes, by failing to provide sufficient information C: Yes, by misleading potential clients with the implication that returns have been positive

A is correct. According to Standard III(D) - Performance Presentation, members and candidates must ensure that communication of performance is "fair, accurate, and complete." In this example, the claim of positive excess returns is accurate because, although the funds have posted negative returns, each fund has outperformed its relevant benchmark. The clients are also given a presentation of the five-year returns with the benchmark returns, eliminating any potential misinterpretation. When the format of communications does not allow for a detailed presentation, it is recommended that a reference to the limited nature of the information be made, and more detailed information must be provided upon request.

Ruiz, CFA, covers Campagna Bakeries (CPG) in his capacity as an equity analyst with Ashfield Securities. Approximately six times a year, Ruiz meets with CPG's Executive Vice President, Vivian Fairie, to discuss the company's efforts to expand into new markets. In February, Ruiz hosted Fairie for a meeting at Ashfield's office. In April, they had a lunch meeting that Fairie paid for at a restaurant near CPG's headquarters. In June, Fairie led Ruiz and other analysts on a tour of CPG's new retail locations. In September, Ruiz paid for their dinner so that they could continue their discussions after another meeting at Ashfield's office. Ruiz reports his meeting with Fairie and other CPG representatives in accordance with Ashfield's policies. Has Ruiz most likely violated Standard I(B) - Independence and Objectivity? A: No B: Yes, by hosting Fairie C: Yes, by agreeing to be hosted by Fairie

A is correct. Standard I(B) - Independence and Objectivity allows for the possibility of regular meetings between analysts and representatives of the companies that they cover. However, it is recommended that the issuer should not always host the member or candidate. In this case, Ruiz appears to take care to avoid being hosted by Fairie every meeting and there is no indication that his actions have violated either Ashfield's policies or this Standard.

Guy Lapierre, CFA, is an investment advisor who works with individual investors, many of whom require the services of a tax specialist. Lapierre's colleague, Jeanette Fung, pays Lapierre $1,000 for every referral who becomes one of her clients. In a meeting with his client, Eugene Randolph, Lapierre recommends Fung's services as a tax specialist, adding, "If you become one of Jeanette's clients, she will pay me a flat fee in cash for the referral." Randolph later met with Fung but decided not to become a client of hers. This decision was based in part on his belief that, by paying referral fees, Fung would have to charge excessively high rates for her services. Has Lapierre most likely violated the Standards? A: Yes B: No, because Randolph did not become Fung's client C: No, because he disclosed that he had a referral fee arrangement with Fung

A is correct. According to Standard VI(C) - Referral Fees, members and candidates must disclose the nature of any referral fee arrangements to clients, prospective clients, and employers as well as an estimate of the value of the compensation. In this case, Lapierre disclosed the nature of the arrangement (Fung pays him a flat fee in cash when his referrals become her clients), but he did not provide an estimate of the value of the compensation. Such an incomplete disclosure is a violation of this Standard. ----- Choice B is incorrect because the issue of whether Randolph chose to use Fung's services is irrelevant to the question of whether Lapierre's disclosure was sufficient to comply with this Standard. Choice C is incorrect because, as noted, the test is not whether a referral fee arrangement is disclosed, but whether it is disclosed in sufficient detail.

Calvin Beauregard, CFA, works as an analyst with a securities dealer. For each potential investment that he is assigned to work on, Beauregard adheres to local laws by retaining electronic copies of all relevant documents for six years, at which point they are removed from the firm's server. Documents that are produced as hard copies are scanned and saved in digital form before the original copies are securely shredded. Has Beauregard most likely violated the Standards? A: No B: Yes, by destroying hard copies of documents C: Yes, by retaining records for less than seven years

A is correct. Beauregard has not violated the Standards. According to Standard V(C) - Record Retention, members and candidates must maintain hard or soft copies of all documents that support their "investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients." While CFA Institute recommends that records be maintained for a period of seven years, Beauregard does not violate this Standard by maintaining his records for the six-year period required by local laws. If Beauregard did not take proper measures to ensure that hard copies of documents were shredded in a secure manner, he may be at risk of violating Standard III(E) - Preservation of Confidentiality. However, the evidence suggests that these documents were disposed of in an appropriate manner. Standard V(C) - Record Retention does not prohibit members and candidates from destroying hard copies of documents as long as electronic copies are retained.

Hillary Goff, CFA, is an investment banker with Robertson & Davis, a financial services firm with multiple lines of business. When making presentations to potential new investment banking clients in a range of industries, she promises that her firm will provide full research coverage if the potential client signs on as an investment banking client. Goff does not mention that the two analysts currently employed by her firm both cover companies in various subsectors of the transportation sector. Goff most likely violated the Standards with respect to: A: misrepresentation only. B: independence and objectivity only. C: both misrepresentation and independence and objectivity.

A is correct. Goff has violated Standard I(C) - Misrepresentation by giving prospective clients the impression that her firm is currently capable of providing full research coverage when it only employs two analysts who both cover the transportation sector. Goff does not violate Standard I(B) - Independence and Objectivity by promising research coverage as such promises are consistent with this Standard as long as the subsequent research is not influenced by any commercial relationship between the companies.

Jim Reddington, CFA, is researching Elizabeth Keene Brands (EKN), a designer clothing manufacturer. After analyzing both public and nonpublic information, including insights obtained from interviews with fashion industry experts, Reddington concludes that consumer demand for EKN's new line will fall below expectations and he shorts the company's stock in his personal account. Has Reddington most likely violated the Standards? A: No B: Yes, with respect to priority of transactions C: Yes, with respect to material nonpublic information and priority of transactions

A is correct. Reddington's actions appear to be consistent with Standard II(A) - Material Nonpublic Information, which prohibits members and candidates from acting on or causing others to act on information that is both material and nonpublic. Although Reddington has based his actions in part on nonpublic information, there is no indication that any of it is material. Additionally, there is no evidence that Reddington has violated Standard VI(B) - Priority of Transactions by taking a short position in EKN's stock. Reddington does not appear to manage any client accounts and is free to take such action because no clients that have been disadvantaged by his personal trades.

Ken Bush, CFA, has recently joined the fixed income department of a regional bank. After observing some activities that he believes to be illegal, Bush does not report his suspicions to his firm's compliance department, choosing instead to immediately resign and report his suspicions to regulators. Has Bush most likely violated the Standards? A: No B: Yes, by resigning without reporting his suspicions to his firm's compliance department C: Yes, by reporting his suspicions to regulators without reporting his suspicions to his firm's compliance department

A is correct. Standard I(A) - Knowledge of the Law requires members and candidates to dissociate from any violation of laws, rules, regulations, or the Standards themselves. This Standard does not require members and candidates to report their suspicions to legal or regulatory authorities (unless such action is specifically required by law and there is no evidence of such a requirement in this example). The guidance for this Standard recommends that members and candidates who have observed what they believe to be illegal or unethical activities begin by reporting these concerns by their firm's compliance department. While Bush may have reported his suspicions to regulators and resigned his position earlier than might be required by this Standard, he has not violated it by doing so.

Bruce Adams, CFA, has just finished meeting with his client Martin Stanford, a 42-year-old executive with a below-average willingness to take investment risk despite having a high level of wealth and a long time horizon. Adams arranges a meeting with his supervisor, Lynn Lavictoire, during which they discuss Stanford's file in detail. Later that evening, Adams calls his father, a retired investment advisor, to ask for advice on helping clients become more aware of their ability to take additional investment risk. Has Adams violated the CFA Standards? A: No B: Yes, by speaking with his father C: Yes, by speaking with Lavictoire

A is correct. Standard III(E) - Preservation of Confidentiality requires members and candidates to keep client information confidential. However, Adams' discussion of the details of Stanford's case with his supervisor is not a violation of this Standard. In the conversation with his father, Adams asks for advice on a general topic, and there is no evidence to suggest that confidential information about Stanford, or any other client, was disclosed.

Scott Holly, CFA, is an equity manager who pursues a value investment style. When making investment decisions for clients, Holly relies on a proprietary quantitative model that has been developed within his firm. Recently, Holly decided to use a new version of the original model that has been adapted to forecast stock prices using different discount rates for various stages of growth. The recommendations are consistent with Holly's value investment style that has been deemed suitable for all of his clients. Has Holly most likely violated the Standards if he does not inform his clients about the change in the model? A: Yes B: No, because his investment style has not changed and it is suitable for his clients C: No, because the recommendations are based on a version of a model that is known to clients

A is correct. Standard V(B) - Communication with Clients and Prospective Clients requires members and candidates to disclose changes in investment analysis to clients and prospective clients. In this example, Holly violates this Standard by failing to disclose that his recommendations are based on a new version of a model that he had previously used.

Excel Brokers has established a referral arrangement with Miller Investments according to which Excel refers clients seeking investment advice to Miller. In exchange, Miller provides Excel with access to all its investment research. Additionally, Miller's clients who were referred by Excel pay lower commissions for trades that Excel executes on their behalf. Randall Jacoby, CFA, is an advisor with Miller. Jacoby has recently signed a client who has an account with Excel but was not referred by anyone at that firm. After completing the paperwork required to formalize the advisory relationship, Jacoby discloses the full details of the arrangement between his firm and Excel. Has Jacoby most likely violated the Standards? A: Yes B: No, because he is not receiving any direct compensation C: No, because the client came to Miller without being referred

A is correct. Standard VI(C) - Referral Fees requires members and candidates to "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." In this example, Jacoby violates this Standard by failing to disclose the details of the arrangement between Excel and Miller before entering into a service agreement with his new client, who would have been able to more accurately assess the nature of the services and their relative costs. Although the client was not referred by anyone at Excel and Jacoby is not being directly compensated, these facts do not absolve him of his responsibilities under this Standard. This arrangement will impact the client's account and must be disclosed.

Which of the following responses most completely represents an ethical principle of CFA Institute as outlined in the Standards of Practice Handbook? A) Individual professionalism B) Responsibilities to clients and employers C) Ethics involved in investment analysis and recommendations

A is correct. Within the Standards of Practice Handbook, CFA Institute addresses ethical principles for the profession in the following Standards: individual professionalism; integrity in capital markets; responsibilities to clients, responsibilities to employers; ethics involved in investment analysis, recommendations, and actions; and possible conflicts of interest. ----- B is incorrect because it represents, and combines, two ethical principles, those relating to the Standards "Duties to Clients" and "Duties to Employers." C is incorrect because the ethical principle (and Standard) relating to ethics in investment analysis and recommendations also includes actions.

During a round of golf, Rodriguez, chief financial officer of Mega Retail, mentions to Hart, a local investment adviser and long-time personal friend, that Mega is having an exceptional sales quarter. Rodriguez expects the results to be almost 10% above the current estimates. The next day, Hart initiates the purchase of a large stake in the local exchange-traded retail fund for her personal account. A) Hart violated the Code and Standards by investing in the exchange-traded fund that included Mega Retail. B) Hart did not violate the Code and Standards because she did not invest directly in securities of Mega Retail. C) Rodriguez did not violate the Code and Standards because the comments made to Hart were not intended to solicit an investment in Mega Retail.

Answer A is correct. Hart's decision to invest in the retail fund appears directly correlated with Rodriguez's statement about the successful quarter of Mega Retail and thus violates Standard II(A)-Material Nonpublic Information. ----- B is incorrect as Rodriguez's information would be considered material because it would influence the share price of Mega Retail and probably influence the price of the entire exchange-traded retail fund. Answer C is also incorrect because Rodriguez shared information that was both material and nonpublic. Company officers regularly have such knowledge about their firms, which is not a violation. The sharing of such information, however, even in a conversation between friends, does violate Standard II(A).

Townsend was recently appointed to the board of directors of a youth golf program that is the local chapter of a national not-for-profit organization. The program is beginning a new fund-raising campaign to expand the number of annual scholarships it provides. Townsend believes many of her clients make annual donations to charity. The next week in her regular newsletter to all clients, she includes a small section discussing the fund-raising campaign and her position on the organization's board. A) Townsend did not violate the Code and Standards. B) Townsend violated the Code and Standards by soliciting donations from her clients through the newsletter. C) Townsend violated the Code and Standards by not getting approval of the organization before soliciting her clients.

Answer A is correct. Townsend has not provided any information about her clients to the leaders or managers of the golf program; thus, she has not violated Standard III(E)-Preservation of Confidentiality. Providing contact information about her clients for a direct-mail solicitation would have been a violation. ----- Answer B is incorrect because the notice in the newsletter does not violate Standard III(E). Answer C is incorrect because the golf program's fund-raising campaign had already begun, so discussing the opportunity to donate was appropriate.

Recommendations to prevent violation of standard III D include

Apply GIPS standard If not using GIPS standard, then member/candidates should do the following - considering the knowledge and sophistication of the audience to whom a performance presentation is addressed, - presenting the performance of the weighted composite of similar portfolios rather than using a single representative account, - including terminated accounts as part of performance history with a clear indication of when the accounts were terminated, - including disclosures that fully explain the performance results being reported (for example, stating, when appropriate, that results are simulated when model results are used, clearly indicating when the performance record is that of a prior entity, or disclosing whether the performance is gross of fees, net of fees, or after tax), and - maintaining the data and records used to calculate the performance being presented.

Recommendations to prevent violation of standard V C

Archive research notes and other documents, either electronically or in hard copy, that support their current investment-related communications.

Which of the following activities if undertaken by CFA Institute members and/or candidates would most likely violate the Code and Standards? A) An analyst discloses confidential, sensitive information about a client account as part of an investigation by the CFA Institute Professional Conduct Program. B) A senior trader does not have safeguards in place to determine whether a junior trader under their supervision is following the firm's policies regarding best execution. C) An institutional portfolio manager takes a group of clients to an expensive restaurant to discuss portfolio returns over the recently completed quarter without prior written consent from his employer.

B is Correct because Standard IV(C)-Responsibilities of Supervisors states that members and candidates must make reasonable efforts to prevent violation of applicable laws, rules, regulations, and the Code and Standards by anyone subject to their supervision or authority. Interviewing with a competitor during lunch or taking clients out to lunch do not necessarily violate any Standard unless specifically prohibited in company policies. ---- A is Incorrect because Standard III(E)-Preservation of Confidentiality is not intended to prevent a member or candidate from cooperating with an investigation with the CFA Institute Professional Conduct Program (PCP). Members and candidates can consider the PCP an extension of themselves when requested to provide information about a client in support of a PCP investigation. C is Incorrect because this action does not create a conflict with their employer. While it may be advisable to get prior approval before this event, this action does not constitute a clear violation of the Code and Standards as long as it does not conflict with any of the company's policies.

Norman Bosno, CFA, acts as an outside portfolio manager to a Sovereign Wealth Fund. Raphel Palmeti, a Fund official, approaches Bosno to interest him in investing in Starlite Construction Company. He tells Bosno if he approves a two million dollar investment in Starlite by the Fund, Bosno will receive a "bonus" that will make him wealthy. Palmeti also adds if Bosno decides not to invest, he will lose the Fund account. After doing a quick and simple analysis, Bosno determines the investment is too risky for the Fund. If Bosno agrees to make the investment, what Standard is least likely to be violated? A) Loyalty, Prudence, and Care B) Diligence and Reasonable Basis C) Additional Compensation Arrangements

B is Correct because despite Bosno undertaking a quick and simple analysis to determine the investment would be too risky for the Sovereign Wealth Fund doesn't necessarily mean he was not diligent and did not have a reasonable basis for making that determination. ----- A is Incorrect because Bosno has a duty to ensure loyalty, prudence, and care to his client, the Sovereign Wealth Fund, not the Fund Official. The Fund's interests must come before the Official's, Bosno's, or his company's. C is incorrect because the Standard Duties to Employers-Additional Compensation Arrangements calls for a member or candidate to not accept gifts or benefits that compete with or might reasonably be expected to create a conflict of interest with their employer's interests unless they obtain written consent from all parties involved prior to receiving the compensation.

Jim Joyner, CFA, a portfolio manager with Breakstone Asset Management, works with individual investors. CFA Institute's Disciplinary Review Committee (DRC) recently ruled that Joyner had violated the Standards, and affirmed the Profession Conduct Program staff's recommendation that his membership be suspended for two years. Which of the following statements is most accurate? Joyner: A: may appeal the DRC's ruling. B: may continue to work with clients while his suspension is in effect. C: must not engage in any professional activities while his suspension is in effect.

B is correct The range of sanctions that CFA Institute may impose on members and candidates who violate the Standards does not include a prohibition on professional activities. In this example, Joyner may continue to work with clients during his suspension, but he must not use the CFA designation until such time as his membership is reinstated. Joyner may not appeal the ruling issued by the DRC, which is the final authority on such matters.

Jack Fahey, CFA, is a portfolio manager of Pacific Sunrise Investments, which does not claim compliance with the Global Investment Performance Standards (GIPS). When presenting the historical performance of his small-cap growth composite, Fahey notes that only fee-paying accounts are included, but he does not mention that both discretionary and non-discretionary accounts are included. Has Fahey most likely violated the Standards? A: Yes, with respect to performance presentation only B: Yes, with respect to both performance presentation and misrepresenation C: No, because Pacific Sunrise Investments does not claim compliance with GIPS

B is correct. According to Standard I(C) - Misrepresentation, members and candidates "must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities." Standard III(D) - Performance Presentation requires members and candidates to make reasonable efforts to present performance information in a manner that is "fair, accurate, and complete." In this example, Fahey violates both of these Standards by failing to note that the small-cap growth composite includes both discretionary and non-discretionary accounts, as the composite's performance may misrepresent his abilities as a portfolio manager. The compliance status of Fahey's firm with GIPS is irrelevant to whether he has personally violated these Standards.

William Thorpe, CFA, is a portfolio manager who serves both individual and institutional clients. Due to a heavy workload, Thorpe is struggling to keep up with his clients. One task which takes up a large amount of Thorpe's time is proxy voting. Which of the following statements is least likely correct, as it relates to Thorpe's responsibility regarding voting of proxies? Thorpe: A: must vote proxies in an informed and responsible manner. B: is required to vote proxies only when specifically instructed to do so by his clients. C: may choose not to vote proxies based on an analysis of the net benefit such action would provide the client.

B is correct. According to Standard III(A) - Loyalty, Prudence, and Care, 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." Proxies have economic value and Thorpe must vote them responsibly on behalf of his clients, even when he is not specifically instructed to do so. While this obligation applies to votes on non-routine matters, members and candidates are not required to vote proxies in cases when a cost-benefit analysis shows that the client would not benefit.

Sheila Cross, CFA, has been managing Eric Nance's investment portfolio for the past 15 years. Recently, Eric revealed to Cross that he has been having some marital difficulties and requested that she manage his accounts as if a divorce is imminent. Joel Nance, Eric's son, calls Cross to discuss his personal investments, which she also manages. During the call, Cross extends her condolences on the deteriorating state of Joel's parents' marriage and mentions that her own parents divorced and she is available to discuss the situation further. Has Cross most likely violated the Standards? A: No B: Yes, with respect to preservation of confidentiality only C: Yes, with respect to preservation of confidentiality and disclosure of conflicts

B is correct. According to Standard III(E) - Preservation of Confidentiality, 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. In this example, Cross must obtain Eric Nance's permission before discussing his personal situation, even with his son. There is no indication that Cross has violated Standard VI(A) - Disclosure of Conflicts.

Patrick Cobb, CFA, works as a portfolio manager at Paradiso Asset Management (PAM), which manages investments for large, institutional investors. PAM's minimum account size is $20 million. Twice a week, Cobb volunteers to serve meals at a local homeless shelter, Hospitality at the Heart (HH). The chair of the HH board has asked Cobb to manage the charity's portfolio, valued at $8 million, in return for compensation of 0.06% of assets under management annually. Domingo Rivera, another portfolio manager at PAM, overheard Cobb discussing details for this potential arrangement and accused his colleague of being disloyal to his employer and engaging in independent practice. Has Cobb most likely violated the Standards? A: No, because HH's account is too small for PAM B: No, because he has not accepted the offer from HH's board C: Yes, because he has not received written permission from PAM

B is correct. According to Standard IV(A) - Loyalty, "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." Cobb's work as a portfolio manager for PAM is related to the work that he has been asked to do on behalf of HH, for which he would receive compensation. Therefore, Cobb would violate this Standard if he accepted the offer without receiving written consent from PAM after having provided a detailed description of the arrangement with HH. However, Cobb does not violate this Standard merely by having received an offer and discussing it. The fact that the value of the HH account is less than the minimum size of accounts managed by PAM does not relieve Cobb of the obligation created by this Standard.

According to the Code of Ethics, members of CFA Institute and candidates for the CFA designation must: A) maintain their professional competence to exercise independent professional judgment. B) place the integrity of the investment profession and the interests of clients above their own personal interests. C) practice in a professional and ethical manner with the public, clients, and others in the global capital markets.

B is correct. Members of CFA Institute and candidates for the CFA designation must place the integrity of the investment profession and the interests of clients above their own personal interests. ----- A is incorrect because members of CFA Institute and candidates for the CFA designation must maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals. The exercise of independent professional judgment is associated with using reasonable care. C is incorrect because members of CFA Institute and candidates for the CFA designation must practice and encourage others to practice in a professional and ethical manner that will reflect credibly on themselves and the profession. Members are supposed to act with integrity, competence, diligence, and respect and in an ethical manner with the public, clients, and other market participants.

Paper was recently terminated as one of a team of five managers of an equity fund. The fund had two value-focused managers and terminated one of them to reduce costs. In a letter sent to prospective employers, Paper presents, with written permission of the firm, the performance history of the fund to demonstrate his past success. A) Paper did not violate the Code and Standards. B) Paper violated the Code and Standards by claiming the performance of the entire fund as his own. C) Paper violated the Code and Standards by including the historical results of his prior employer.

B is correct. Paper has violated Standard III(D)-Performance Presentation by not disclosing that he was part of a team of managers that achieved the results shown. ----- Answer A is incorrect If he had also included the return of the portion he directly managed, he would not have violated the standard. Answer C is incorrect because Paper received written permission from his prior employer to include the results.

According to the Duties to Clients standard, suitability requires members and candidates in an advisory relationship with a client to: A) place their clients' interests before their own interests. B) consider investments in the context of the client's total portfolio. C) not knowingly make misrepresentations relating to recommendations.

B is correct. Standard III.C.1c Suitability states that when members and candidates are in an advisory relationship with a client, they must judge the suitability of investments in the context of the client's total portfolio. ----- A is incorrect because this is a requirement addressed under Standard III.A Loyalty, Prudence, and Care, not Standard III.C.1c Suitability. C is incorrect because this is a requirement addressed under Standard I.C Misrepresentation, not Standard III.C.1c Suitability.

Which of the following statements best describes an aspect of the Standards of Professional Conduct? Members and candidates are required to: A: ensure any portfolio mandate followed is fair, accurate, and complete. B: promptly disclose changes that might materially affect investment processes. C: have a reasonable and adequate basis for decisions about client confidentiality.

B is correct. The current Standards of Professional Conduct requires members and candidates to promptly disclose any changes that might materially affect investment processes. ----- A is incorrect because under Standard III.C.2 Suitability, when members and candidates are responsible for managing a portfolio according to a specific mandate, they must take only investment actions that are consistent with the stated objectives of the portfolio. The "fair, accurate, and complete" criterion relates to the Standard III D Performance Presentation. C is incorrect because under Standard III.E.1, 2, 3 Preservation of Confidentiality, members and candidates must keep information about current clients confidential unless the information concerns illegal activities on the part of the client, disclosure is required by law, or the client permits disclosure. No decisions on confidentiality are required, with the "reasonable and adequate basis" criterion related to Standard V.A.2 Diligence and Reasonable Basis.

Standard I B

Independence and Objectivity - 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.

David Donnigan enrolled to take the Level II CFA examination in the current year, however he did not take the exam. Donnigan advised his employer he passed Level II. Subsequently, he registered to take the Level II exam the next year. Which CFA Institute Standard of Professional Conduct did Donnigan least likely violate? A) Duty to employer B) Professional misconduct C) Referencing Candidacy in the CFA Program

C is Correct because as he registered to take the exam in the next year he still qualifies to state he is a candidate in the CFA Program. He would not, however, be authorized to reference that he is a Level III candidate and if asked would need to specify that he is a Level II candidate. ----- A is Incorrect because Standard IV(A) requires members and candidates to protect the interests of their firm by refraining from any conduct that would injure the firm, deprive it of profit, or deprive it of the member's or candidate's skills and ability. Lying about passing the CFA examination could cause the firm to misrepresent Donnigan's progression in the CFA program to a client, leading to reputational damage if discovered. B is Incorrect because he lied to his employer about passing the examination, which is a professional misconduct violation. Members should not engage in conduct involving dishonesty, fraud, deceit, or misrepresentation [Standard I(D)].

Charlie Mancini, CFA, is the Managing Director for Business Development at SV Financial (SVF), a large US-based mutual fund organization. Mancini has been under pressure recently to increase revenues. In order to secure business from a large hedge fund manager based in Asia, Mancini recently approved flexible terms for the fund's client agreement. To allow for time zone differences, the agreement permits the hedge fund to trade in all of SVF's mutual funds six hours after the close of US markets, which is prohibited by US regulators. Did Mancini violate any CFA Institute Standards of Professional Conduct? A) No B) Yes, with regard to fair dealing C) Yes, with regard to fair dealing and to material nonpublic information

C is Correct because clients should be treated fairly and impartially [Standard III(B)]. In addition, the flexible trading terms allow the hedge fund manager to enrich themselves and is a violation of Standard II(A), concerning trading on material nonpublic information. This is also a conflict of interest [Standard VI(A)-Disclosure of Conflicts]. ----- A is Incorrect because violations of several Standards have occurred. B is Incorrect because a violation of the Fair Dealing standard has occurred.

Ian O'Sullivan, CFA, is the owner and sole employee of two companies, a public relations firm and a financial research firm. The public relations firm entered into a contract with Mallory Enterprises to provide public relations services, with O'Sullivan receiving 40,000 shares of Mallory stock in payment for his services. Over the next 10 days, the public relations firm issued several press releases that discussed Mallory's excellent growth prospects. O'Sullivan, through his financial research firm, also published a research report recommending Mallory stock as a "buy." According to the CFA Institute Standards of Professional Conduct, O'Sullivan is most likely required to disclose his ownership of Mallory stock in: A) the press releases only. B) the research report only. C) both the press release and the research report.

C is Correct because members should disclose all matters that reasonably could be expected to impair the member's objectivity [Standard I(B), Standard VI(A)]. ----- A and B are Incorrect because both the press release and the research report should disclose any potential conflict of interest.

Jefferson Piedmont, CFA, a portfolio manager for Park Investments, plans to manage the portfolios of several family members in exchange for a percentage of each portfolio's profits. As his family members have extensive portfolios requiring substantial attention, they have requested that Piedmont provide the services outside his employment with Park. Piedmont notifies his employer in writing of his prospective outside employment. Two weeks later, Piedmont begins managing the family members' portfolios. By managing these portfolios, which of the following CFA Institute Standards of Professional Conduct has Piedmont violated? A) Conflicts of interest B) Additional compensation C) Both conflicts of interest and additional compensation

C is Correct because members should disclose all potential conflicts of interest, the substantial time involved in managing family accounts, and when engaging in independent practice for compensation should not render services until receiving written consent from all parties [Standard IV(B), Standard VI(A)]. ----- A and B are Incorrect because both standards have been violated.

Paul Sparfeld, CFA, is in charge of presenting performance results for his investment firm, a sole proprietorship with three employees. Which of the following performance presentation policies adopted by Sparfeld's firm is least likely consistent with the recommendations for compliance with the Standards? A: Applying the GIPS standards. B: Presenting composite returns that include both actual and simulated data C: Removing the contribution of terminated portfolios when presenting historical returns

C is correct. According to the recommendations for compliance with Standard III(D) - Performance Presentation, terminated accounts should be included when calculating historical performance. The point at which accounts were terminated should be clearly indicated. Removing the contribution of such accounts misrepresents historical performance. Compliance with GIPS standards is the best method to adhere to this Standard. It is also not a violation of this Standard to present returns that include both actual and simulated data, provided simulated returns are clearly identified as such.

Which of the following statements is most accurate? A disciplinary sanction is sent to the Disciplinary Review Committee for review directly after: A: the Designated Officer deems a sanction is warranted. B: the member or candidate rejects the Designated Officer's sanction. C: evidence of misconduct is obtained by Professional Conduct Program staff.

C is correct. For a sanction to be sent to the Disciplinary Review Committee (DRC), the following must occur: 1) The member or candidate is believed to have broken the Code or Standards. 2) The Professional Conduct staff is made aware of the alleged transgression and conducts inquiries. 3) The Designated Officer decides that a sanction is warranted and proposes a specific sanction to the member or candidate. 4) The member or candidate rejects the sanction. 5) The DRC hearing panel acts as an arbitrator.

Nathan Bradley, CFA, an independent equity analyst, accepts an offer from Whitten Manufacturing (WMN) to write a research report analyzing the company's stock. Before undertaking any work on the report, Bradley agrees to accept a flat fee and a fixed number of WMN stock options as compensation. Neither the value of the fee or the number of options Bradley receives is linked to his report's conclusions or recommendations. One year after the report is issued, Bradley exercises the options. Has Bradley most likely violated the Standards? A: No B: Yes, with respect to independence and objectivity only C: Yes, with respect to both independence and objectivity and additional compensation arrangments

C is correct. Issuer-paid research, such as the work described in this example, is allowed by Standard I(B) - Independence and Objectivity under certain conditions. Bradley would not have violated this Standard by accepting a flat fee that was agreed in advance of him undertaking any work and was not linked to his report's conclusions or recommendations. However, Bradley does violate this Standard by accepting a compensation package that includes options to purchase WMN shares as this type of equity-based compensation could reasonably be expected to influence his ability to remain independent and objective. Bradly will likely be biased to release a positive report as that will increase the value of his stock options of WMN. There is no indication that Bradley has violated Standard IV(B) - Additional Compensation Arrangements, which prohibits members and candidates from accepting compensation for work that conflicts with the interest of their employer without receiving written consent from all parties involved

Harold Kaplan, CFA, manages three equity mutual funds, all which have similar mandates. Kaplan holds a large position in A&B Energy (ABE) in one of his funds, but he is concerned that this fund is overexposed to fluctuations in the price of this stock. In particular, Kaplan notes that returns on ABE have been low relative to stocks issued by its competitors during a period of rising energy prices. In order to support the price of ABE shares, Kaplan trades these stocks between his funds. The strategy turns out to be successful as the higher price of ABE shares more than offsets the commissions incurred to trade between funds. Has Kaplan most likely violated the Standards? A: No B: Yes, with respect to suitability C: Yes, with respect to market manipulation

C is correct. Kaplan has violated Standard II(B) - Market Manipulation by executing trades intended to provide artificial support to the price of ABE shares. There is no indication that Kaplan has violated Standard III(C) - Suitability as all three of the funds he manages have similar mandates.

Janis Tomford, CFA, is a well-known and influential analyst covering the music industry for Blue Sky Investments. Recently, after informing her clients in advance, Tomford adopted the practice of disseminating her investment recommendations exclusively via social media. In order to give her clients the opportunity to act on her recommendations before other investors, Tomford posts them in a password-protected forum. The post containing her latest recommendation read as follows: "Buy HBM, Target $24.75" Due to Tomford's influence, Blue Sky clients find that they can achieve significant short-term returns if they are able to act on her recommendations before they become known to the broader community of investors. Tomford has most likely violated the Standards with respect to: A: fair dealing. B: material nonpublic information. C: communication with clients and prospective clients.

C is correct. Tomford violates Standard V(B) - Communication with Clients and Prospective Clients by failing to provide sufficient information related to her analysis as well as the risks associated with the stocks she is recommending. Recommendations can be in capsule form, but the member should notify clients that additional information is available from the author of the report. According to the guidance for Standard II(A) - Material Nonpublic Information, social media is considered to be comparable to more traditional forms of media for the purpose of communicating with clients. Tomford does not violate this Standard by disseminating her opinions via social media. She also does not violate this Standard by issuing recommendations that appear to impact market prices as long as she has not used material nonpublic information. Investors who are not clients are free to pay for access to her apparently influential opinions. Standard III(B) - Fair Dealing requires members and candidates to "deal fairly and objectively with all clients." As noted in the guidance for the Standard, members and candidates are "obligated to ensure that information in disseminated in such a manner that all clients have a fair opportunity to act on every recommendation." Tomford does not violate this Standard by distributing her recommendations via social media as she informed her clients in advance of the change. There is no evidence that any have been denied a fair opportunity to act on them - although some may find that the opportunity to act profitably has passed by the time they actually check this forum.

As stated in the revised 11th edition, the Standards of Professional Conduct: A: require supervisors to focus on the detection and prevention of violations. B: adopt separate ethical considerations for programs such as CIPM and Investment Foundations. C: address the risks and limitations of recommendations being made to clients.

C is correct. Given the constant development of new and exotic financial instruments and strategies, the standard regarding communicating with clients now includes an implicit requirement to discuss the risks and limitations of recommendations being made to clients. ----- A is incorrect because the updated standard for members and candidates with supervision or authority over others within their firms stresses broader compliance expectations, which include the detection and prevention aspects of the original version that was the prior focus. B is incorrect because the updated standard not only maintains the integrity of the CFA Program but also expands the same (not separate) ethical considerations when members or candidates participate in such programs as the CIPM Program and the Investment Foundations Certificate.

TYpes of market manipulation

Information based - spreading false rumors to induge trading by others Transaction based - involves instances where a member or candidate knew or should have known that his or her actions could affect the pricing of a security.

The Investment Analysis, Recommendations, and Actions standard states that members and candidates must: A) find an investment suitable for their client before making a recommendation. B) make reasonable efforts to ensure that performance presentation is fair, accurate, and complete. C) distinguish between fact and opinion in the presentation of investment analysis and recommendations.

C is correct. The V.B.4 Communications with Clients and Prospective Clients section of the Investment Analysis, Recommendations, and Actions standard states that members and candidates must distinguish between fact and opinion in the presentation of investment analysis and recommendations. ----- A is incorrect because this standard is discussed in the III.C.1b Suitability section of the Duties to Clients standard. B is incorrect because performance presentation is discussed in the III.D Performance Presentation section of the Duties to Clients standard.

Enforcement of Codes and Standards

CFA institute members and candidates must comply with code and standards The CFA Institute Board of Governors and Disciplinary Review Committee (DRC), maintains oversight and responsibility for the Professional Conduct Program (PCP) - The DCR are volunteers CFA Institute Bylaws and Rules of Procedure (Rules of Procedure) creates a basic structure in enforcing Code and Standards

Recommendations to prevent violation of standard I D

Code of ethics: Develop and/or adopt a code of ethics to which every employee must subscribe, and make clear that any personal behavior that reflects poorly on the individual involved, the institution as a whole, or the investment industry will not be tolerated. List of violations: Disseminate to all employees a list of potential violations and associated disciplinary sanctions, up to and including dismissal from the firm. Employee references: Check references of potential employees to ensure that they are of good character and not ineligible to work in the investment industry because of past infractions of the law.

Standards V B

Communication with Clients and Prospective Clients Members and Candidates must: - 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. - Disclose to clients and prospective clients significant limitations and risks associated with the investment process. - 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. = Distinguish between fact and opinion in the presentation of investment analysis and recommendations. - When providing information to clients through new technologies, members and candidates should take reasonable steps to ensure that such delivery would treat all clients fairly and, if necessary, be considered publicly disseminated. - In the case of complex quantitative analyses, members and candidates must clearly separate fact from statistical conjecture and should identify the known limitations of an analysis.

Recommendations to prevent violation of standard V A include

Develop detailed, written guidance for scenario testing for all quantitative models Develop, written guidance for research analysts regarding if their recommendation is adequate Create a policy requiring all investment-related reports to have a reasonable basis while being measurable Develop measurable criteria regarding third parties.

Standards V A

Diligence and Reasonable Basis Members and Candidates must: - Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions. - Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action. this includes secondary or third party research - Individuals who create new quantitative models and services must exhibit a higher level of diligence in reviewing new products than the individuals who ultimately use the analytical output.

Recommendations to prevent violation of standard VI A include

Disclose special compensation arrangements with the employer that might conflict with client interests, such as bonuses based on short-term performance criteria, commissions, and other fees Members' and candidates' firms are encouraged to include information on compensation packages in firms' promotional literature.

Standards VI A

Disclosure of Conflicts - 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.

Recommendations to prevent violation of standard VII A include

Don't discuss exam questions/answers/grades to anyone besides proctors Do not cheat in exam Do not use CFA trade marks unless you got permission from organisaiton

Standard III B

Fair Dealing - 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.

Recommendations to prevent violation of standard I C

Firm providing accurate and complete presentation regarding their services, description of firm's qualifications to the client. Each member/candidate provide summary of their qualifications and experience and a list of the services the member or candidate is capable of performing. Firm verify accuracy of marketing and distribution materials when advertising to clients using a third party Firm make sures content on their website is up to date Firm don't plagiarize content

Recommendations to prevent violation of standard III B

Firm should do the following - Limit the number of people involved: Members and candidates should make reasonable efforts to limit the number of people who are privy to the fact that a recommendation is going to be disseminated. - Shorten the time frame between decision and dissemination: Members and candidates should make reasonable efforts to limit the amount of time that elapses between the decision to make an investment recommendation and the time the actual recommendation is disseminated. - Publish guidelines for pre-dissemination behavior: Members and candidates should encourage firms to develop guidelines that prohibit personnel who have prior knowledge of an investment recommendation from discussing or taking any action on the pending recommendation. - Simultaneous dissemination: Members and candidates should establish procedures for the timing of dissemination of investment recommendations so that all clients are treated fairly—that is, are informed at approximately the same time. - Maintain a list of clients and their holdings: Members and candidates should maintain a list of all clients and the securities or other investments each client holds in order to facilitate notification of customers or clients of a change in an investment recommendation. - Develop and document trade allocation procedures: When formulating procedures for allocating trades, members and candidates should develop a set of guiding principles that ensure Individuals should do the following: - Disclose trade allocation procedures - Establish systematic account review - Disclose levels of service

Recommendations to prevent violation of standard V B include

Firms should have rigorous methodology for reviewing research that is created for publication

Recommendations to prevent violation of standard VI B include

Firms should impose the following on employees - Limit particiaption in equity IPOs - Have restrictions on private placements - Establish time when trading, investing is not allowed - Report all trades

Recommendations to prevent violation of standard II A

Have interdepartmental communications Separate each firm's service line physically Prevent overlap between employees in terms of workloads Have a reporting system Set personal trading limitations Keep records of communication between employees Set procedures for proprietary trading Encourage employees to circulate written compliance policies and guidelines

7 Standards of Professional Conduct:

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

Standard I A

Knowledge of the Law - 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. - If a member or candidate has reasonable grounds to believe that imminent or ongoing client or employer activities are illegal or unethical, the member or candidate must dissociate, or separate, from the activity. This includes leaving their job if necessary

Standards IV A

Loyalty - 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.

Standard III A

Loyalty, Prudence, and Care - 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. - A member or candidate who pays a higher brokerage commission than he or she would normally pay to allow for the purchase of goods or services, without corresponding benefit to the client, violates the duty of loyalty to the client. - Part of a member's or candidate's duty of loyalty includes voting proxies in an informed and responsible manner.

Standard II B

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

Standard II A

Material Nonpublic Information 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. - The less reliable a source, the less likely the information provided would be considered material. - Information is "nonpublic" until it has been disseminated or is available to the marketplace in general (as opposed to a select group of investors).

Standard I D

Misconduct - 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. -

Standard I C

Misrepresentation - Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities. - prohibits members and candidates from guaranteeing clients any specific return on volatile investments. Most investments contain some element of risk that makes their return inherently unpredictable. - prohibits plagiarism in the preparation of material for distribution to employers, associates, clients, prospects, or the general public.

Standard III D

Performance Presentation When communicating investment performance information, Members and Candidates must make reasonable efforts to ensure that it is fair, accurate, and complete. - This standard prohibits misrepresentations of past performance or reasonably expected performance.

Standard III E

Preservation of Confidentiality Members and Candidates must keep information about current, former, and prospective clients confidential unless: - The information concerns illegal activities on the part of the client or prospective client, - Disclosure is required by law, or - The client or prospective client permits disclosure of the information. - members and candidates must continue to maintain the confidentiality of client records even after the client relationship has ended.

Standards VI B

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

Recommendations to prevent violation of standard I B

Protect the integrity of opinions: Members, candidates, and their firms should establish policies stating that every research report concerning the securities of a corporate client should reflect the unbiased opinion of the analyst. Create a restricted list: If the firm is unwilling to permit dissemination of adverse opinions about a corporate client, members and candidates should encourage the firm to remove the controversial company from the research universe and put it on a restricted list so that the firm disseminates only factual information about the company. Restrict special cost arrangements: When attending meetings at an issuer's headquarters, members and candidates should pay for commercial transportation and hotel charges ie restrict client from hosting Limit gifts: Members and candidates must limit the acceptance of gratuities and/or gifts to token items via setting a strict value limit for acceptable gifts that is based on the local or regional customs/price limit Restrict investments: Members and candidates should encourage their investment firms to develop formal policies related to employee purchases of equity or equity-related IPOs. Review procedures: Members and candidates should encourage their firms to implement effective supervisory and review procedures to ensure that analysts and portfolio managers comply with policies relating to their personal investment activities. Independence policy: Members, candidates, and their firms should establish a formal written policy on the independence and objectivity of research and implement reporting structures and review procedures to ensure that research analysts do not report to and are not supervised or controlled by any department of the firm that could compromise the independence of the analyst. Appointed officer: Firms should appoint a senior officer with oversight responsibilities for compliance with the firm's code of ethics and all regulations concerning its business.

Standards V C

Record Retention - 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. - records created as part of a member's or candidate's professional activity on behalf of his or her employer are the property of the firm.

Standards VII B

Reference to CFA Institute, the CFA Designation, and the CFA Program - When referring to CFA Institute, CFA Institute membership, the CFA designation, or candidacy in the CFA Program, Members and Candidates must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute, holding the CFA designation, or candidacy in the CFA Program. - "CFA charterholders" are those individuals who have earned the right to use the CFA designation granted by CFA Institute. A person is a candidate in the CFA Program if: - the person's application for registration in the CFA Program has been accepted by CFA Institute, as evidenced by issuance of a notice of acceptance, and the person is enrolled to sit for a specified examination - the registered person has sat for a specified examination but exam results have not yet been received.

Standards VI C

Referral Fees - 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. - Appropriate disclosure means that members and candidates must advise the client or prospective client, before entry into any formal agreement for services, of any benefit given or received for the recommendation of any services provided by the member or candidate - the member or candidate must disclose the nature of the consideration or benefit—for example, flat fee or percentage basis, one-time or continuing benefit, based on performance, benefit in the form of provision of research or other noncash benefit—together with the estimated dollar value.

Standards IV C

Responsibilities of Supervisors - 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.

Recommendations to prevent violation of standard III A

Seek approval from client in writing before undertaking task Follow all applicable rules and laws: Members and candidates must follow all legal requirements and applicable provisions of the Code and Standards. Establish the investment objectives of the client: Make a reasonable inquiry into a client's investment experience, risk and return objectives, and financial constraints prior to making investment recommendations or taking investment actions. Consider all the information when taking actions: When taking investment actions, members and candidates must consider the appropriateness and suitability of the investment relative to (1) the client's needs and circumstances, (2) the investment's basic characteristics, and (3) the basic characteristics of the total portfolio. Diversify: Members and candidates should diversify investments to reduce the risk of loss, unless diversification is not consistent with plan guidelines or is contrary to the account objectives. Carry out regular reviews: Members and candidates should establish regular review schedules to ensure that the investments held in the account adhere to the terms of the governing documents. Deal fairly with all clients with respect to investment actions: Members and candidates must not favor some clients over others and should establish policies for allocating trades and disseminating investment recommendations. Disclose conflicts of interest: Members and candidates must disclose all actual and potential conflicts of interest so that clients can evaluate those conflicts. Disclose compensation arrangements: Members and candidates should make their clients aware of all forms of manager compensation. Vote proxies: In most cases, members and candidates should determine who is authorized to vote shares and vote proxies in the best interests of the clients and ultimate beneficiaries. Maintain confidentiality: Members and candidates must preserve the confidentiality of client information. Seek best execution: Unless directed by the client as ultimate beneficiary, members and candidates must seek best execution for their clients. (Best execution is defined in the preceding text.) Place client interests first: Members and candidates must serve the

Recommendations to prevent violation of Standard I A

Stay informed: Members and candidates should establish or encourage their employers to establish a procedure by which employees are regularly informed about changes in applicable laws, rules, regulations, and case law. Review procedures: Members and candidates should review, or encourage their employers to review, the firm's written compliance procedures on a regular basis to ensure that the procedures reflect current law and provide adequate guidance to employees about what is permissible conduct under the law and/or the Code and Standards. Maintain current files: Members and candidates should maintain or encourage their employers to maintain readily accessible current reference copies of applicable statutes, rules, regulations, and important cases. Seek legal counsel if unsure about decision to prevent violation Disassociate and document and report activity/individual that is violating code and standards Firm should do the following - Develop/adopt code of ethics - Provide information on applicable laws - Establish procedures for reporting violations

Standard III C

Suitability When Members and Candidates are in an advisory relationship with a client, they must: - 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. - 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. - Judge the suitability of investments in the context of the client's total portfolio. 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.

Recommendations to prevent violation of standard III C include

Taking into consderation of the following - client identification—(1) type and nature of client, (2) the existence of separate beneficiaries, and (3) approximate portion of total client assets that the member or candidate is managing; - investor objectives—(1) return objectives (income, growth in principal, maintenance of purchasing power) and (2) risk tolerance (suitability, stability of values); - investor constraints—(1) liquidity needs, (2) expected cash flows (patterns of additions and/or withdrawals), (3) investable funds (assets and liabilities or other commitments), (4) time horizon, (5) tax considerations, (6) regulatory and legal circumstances, (7) investor preferences, prohibitions, circumstances, and unique needs, and (8) proxy voting responsibilities and guidance; and performance measurement benchmarks. Updating client regularly regarding changes in service etc.

What does the CFA Handbook provide

The CFA Handbook provides guidance in understanding the interconnectedness of the aspirational and practical principles and provisions of the Code of Ethics and Standards of Professional Conduct (Code and Standards).

Difference between code and standards of practice handbook

The Code contains high-level aspirational ethical principles that drive members and candidates to create a positive and reputable investment profession. The Standards of Practice Handbook provides guidance to which CFA Institute members and candidates are required to adhere. Both the Code and Starts should be viewed and interpreted together for ethical requirements

Smith is a financial analyst with XYZ Brokerage Firm. She is preparing a purchase recommendation on JNI Corporation. Which of the following situations is most likely to represent a conflict of interest for Smith that would have to be disclosed? A) Smith frequently purchases items produced by JNI. B) XYZ holds for its own account a substantial common stock position in JNI. C) Smith's brother-in-law is a supplier to JNI

The correct answer is B. This question involves Standard VI(A)-Disclosure of Conflicts—specifically, the holdings of an analyst's employer in company stock. Answers A and C do not describe conflicts of interest that Smith would have to disclose. ----- Answer A describes the use of a firm's products, which would not be a required disclosure. In answer C, the relationship between the analyst and the company through a relative is so tangential that it does not create a conflict of interest necessitating disclosure

Which of the following statements is correct under the Code and Standards? A) CFA Institute members and candidates are prohibited from undertaking independent practice in competition with their employer. B) Written consent from the employer is necessary to permit independent practice that could result in compensation or other benefits in competition with a member's or candidate's employer. C) Members and candidates are prohibited from making arrangements or preparations to go into a competitive business before terminating their relationship with their employer.

The correct answer is B. Under Standard IV(A)-Loyalty, members and candidates may undertake independent practice that may result in compensation or other benefit in competition with their employer as long as they obtain consent from their employer. ----- Answer C is not consistent with the Standards because the Standards allow members and candidates to make arrangements or preparations to go into competitive business as long as those arrangements do not interfere with their duty to their current employer. Answer A is not consistent with the Standards because the Standards do not include a complete prohibition against undertaking independent practice.

Which of the following statements is a stated purpose of disclosure in Standard VI(C)-Referral Fees? A) Disclosure will allow the client to request discounted service fees. B) Disclosure will help the client evaluate any possible partiality shown in the recommendation of services. C) Disclosure means advising a prospective client about the referral arrangement once a formal client relationship has been established.

The correct answer is B. Answer B gives one of the two primary reasons listed in the Handbook for disclosing referral fees to clients under Standard VI(C)-Referral Fees. (The other is to allow clients and employers to evaluate the full cost of the services.) ------ Answer A is incorrect because Standard VI(C) does not require members or candidates to discount their fees when they receive referral fees. Answer C is inconsistent with Standard VI(C) because disclosure of referral fees, to be effective, should be made to prospective clients before entering into a formal client relationship with them.