WVU FIN 512
Which of the following is least likely to assist CFA Institute members in meeting their duty of loyalty to their employer under the Code and Standards?
A member working an additional job that utilizes their professional skill and experience.
Which of the following is the least effective procedure for protecting the confidentiality of client information?
Developing standard confidentiality policies applicable regardless of the size and nature of business operations.
Jackson is a registered investment adviser who received a request from a client to move 25% of his diversified $1 million account balance to the common stock of a mid-sized telecom company. The client uses the firm as his phone service provider and believes it is about to receive a merger offer. This transaction is outside the client's current risk profile, but it would help him reach his investment goals if the deal were to occur. What is Jackson's best course of action to comply with the Code and Standards?
Educate the client on the suitability concerns involved with the requested actions before following the approved procedures for executing a client's unsolicited transaction.
When a CFA Institute member is in an advisory relationship with a client, which of the following is NOT a requirement of the Code and Standards?
Ensure the investment will earn a minimum level of positive return.
An investment manager may pay a higher brokerage commission than normal to obtain goods or services, without corresponding benefit to the client, by using "soft dollars" or a "soft commission" to purchase research services.
False
An investment that poses a substantial risk of losing money is always an unsuitable investment.
False
CFA Institute Standard III(B): Fair Dealing requires that all clients are treated equally when CFA Institute members disseminate investment recommendations or take investment action.
False
CFA Institute Standard IV(A): Loyalty (to Employers) prohibits a member from engaging in additional outside work for compensation in competition with their employer.
False
CFA Institute Standard IV(A): Loyalty (to Employers) requires CFA Institute members to place employer interests before personal and client interests.
False
Changing benchmarks to make investment performance history appear better is an acceptable practice for presenting investment performance.
False
The CFA Institute Standard of Professional Conduct related to client confidentiality does not protect the confidentiality of client information if the client is no longer a client.
False
The confidentiality of client information required by the Code and Standards prohibits a CFA Institute member from sharing confidential client information with a CFA Institute Professional Conduct investigation into a member's conduct.
False
Under the Code and Standards, a departing employee is generally free to make arrangements or preparations to go into a competitive business only after terminating the relationship with his or her employer, so as not to violate the employee's duty of loyalty.
False
Under the Code and Standards, a member in an advisory relationship with a client must update a client's financial situation, risk and return objectives, and investment mandates only when alerted to a change in these circumstances by the client.
False
Under the Code and Standards, an investment adviser must thoroughly consider an investment's place in the client's overall financial portfolio, regardless of whether the adviser is aware of or responsible for managing all of the client's financial assets.
False
Under the Code and Standards, whether a CFA Institute member has a duty of loyalty, prudence, and care will depend on his or her job responsibilities, local laws, and whether the member has direct interaction with clients.
False
CFA Institute Standard IV(A): Loyalty (to Employers) prohibits members from engaging in outside activities for compensation that do not conflict with the services provided by their employer.
Falsw
Under the Code and Standards, only those individuals who calculate and determine historical investment performance history are responsible for the accuracy of the performance presentation.
Falsw
When judging the suitability of an investment, the risks posed by an individual investment should always be evaluated without consideration of the other individual investments in a portfolio.
Falsw
When changing employers or starting another company, which of the following statements regarding the responsibilities of CFA Institute members is true?
I and II.
CFA Institute Standard III(D): Performance Presentation requires a fair and complete presentation of performance information whenever communicating data with respect to the performance history of:
I, II, & III
Which of the following is likely to be relevant to an assessment of the suitability of an investment?
I, II, & III
The conduct required of members and candidates in fulfilling their obligations under CFA Institute Standard III(A): Loyalty, Prudence, and Care depends on: I. the nature of their professional responsibilities. II. the relationships they have with clients. IlI. the nature of the services being provided.
I, II, III
CFA Institute members must keep information about current, former, and prospective clients confidential unless:
I, Il, and III
Under the Code and Standards, a CFA Institute member may contradict employer instructions, violate policies and procedures, disclose confidential employer information, or copy employer records to:
II & III
Which of the following examples of conduct is least likely to violate the CFA Institute Standard of Professional Conduct related to presenting investment performance?
Presenting performance in compliance with the Global investment Performance Standards (GIPS®).
Which of the following examples of conduct is least likely to violate the CFA Institute Standard of Professional Conduct related to performance presentation?
Presenting the performance history of a composite of accounts rather than a single "representative" account.
Which of the following is most likely a violation by a CFA Institute member in meeting his or her obligations with regard to presenting investment performance under the Code and Standards?
Presenting the performance of a new investment strategy by applying the strategy to historical performance data
Which of the following is least likely to be a reason to disclose information about a former client under the Code and Standards?
The client's new investment adviser requests the information.
CFA Institute members work in many different roles in the investment industry. For individual members providing services to clients as commission-based brokers that do not offer investment advice, which of the following best describes how the standard of loyalty, prudence, and care applies?
The commission-based broker must work prudently in the interest of the client while executing the requested transaction.
Acting with loyalty mandates that investment actions be carried out in the best interest of the client given the known facts and circumstances.
True
An investment with high relative risk on its own may be a suitable investment in the context of the entire portfolio or when the client's stated objectives would consider speculative or risky investments.
True
CFA Institute Standard III(B): Fair Dealing requires that CFA Institute members treat all clients fairly in light of their investment objectives and circumstances by fairly allocating investment opportunities.
True
The Code and Standards allow CFA Institute members to provide more personal, specialized, or in-depth service to clients who are willing to pay for premium services through higher management fees or higher levels of brokerage.
True
The Global Investment Performance Standards (GIPS®) for reporting investment performance mandate that all fee-paying, discretionary, segregated accounts following similar investment strategies are organized into composites.
True
The exercise of prudence by investment professionals requires caution and discretion, and that they act with the care, skill, and diligence that a reasonable person acting in a similar capacity and familiar with such matters would use.
True
Under CFA Institute Standard III(A): Loyalty, Prudence, and Care, CFA Institute members must exercise the same level of prudent judgment and reasonable care that they would apply in the management and disposition of their own interests in similar circumstances.
True
Under the Code and Standards, CFA Institute members in an advisory relationship with a client 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 an investment recommendation or taking investment action.
True
Under the Code and Standards, CFA Institute members must not contact existing clients or potential clients prior to leaving an employer for the purposes of soliciting their business for the new employer.
True
The Global Investment Performance Standards (GIPS®):
allow investors to directly compare track records between firms and across strategies.
A comprehensive investment policy statement is least likely to include:
an investment's risk and return profile.
CFA Institute Standard III(E): Preservation of Confidentiality is NOT applicable to:
any information learned about the client.
CFA Institute Standard IV(A): Loyalty (to Employers) allows former employees to contact clients of their previous firm:
as long as there is no specific agreement with the former employer not to do SO.
Natalie is the portfolio manager for a large investment fund. Although she does not calculate performance history of the fund or create the performance presentation, she shows the material to potential investors in the fund. She notices an error in the presentation that makes the fund's performance history better than it is. Natalie's best course of action is to:
cease showing the presentation to potential client until those responsible have corrected the errors.
Gabriel is leaving his employer on good terms to take a different position at a new firm. None of his clients will be able to follow him because they do not meet the minimum asset level to become a client of the new firm. Gabriel wants to contact them to let them know who, at his former employer, will be taking over management of their accounts and to reassure them that they will continue to be in good hands. Gabriel's BEST course of action is to:
coordinate the content, timing, and nature of the communication with his former employer.
Through a friend at a different asset management firm, Jessica becomes aware of a new investment opportunity that she believes will interest many of her advisory clients. Jessica's best course of action is to:
give the information about the new investment to the clients who may be interested.
Joshua is preparing a presentation of his past investment performance record to show to potential new clients. To comply with the CFA Institute Standard of Professional Conduct related to performance reporting, his best course of action is to:
group the accounts that he manages into composites of similarly managed portfolios.
George is a junior research analyst who provides basic research support for more senior analysts at his firm who, in turn, make investment recommendations to the firm's portfolio managers. Under the Code and Standards, George:
has a duty of loyalty to firm clients and must act in their best interests.
Phoung has a number of investment management clients. He gives discounts from his standard investment management fee rate to clients who have $25 million or more in their accounts. He also provides personalized service to these clients, regularly checking in with them by phone to discuss new investment opportunities. Phoung:
has not violated the Code and Standards as long as his increased level of service to some clients has not disadvantaged other clients and he has disclosed his different levels of service to all his clients.
An asset adviser managing the investments of individual clients must ensure that:
investment decisions are judged in the context of the client's total portfolio rather than by individual investments in the portfolio.
To encourage fair dealing among clients, CFA Institute members should:
limit the number of people who are privy to the fact that a recommendation is going to be disseminated to clients.
With regard to the confidentiality of electronically stored client information, a CFA Institute member:
must endeavor to avoid disclosure of electronically stored confidential client information.
Reza is an investment manager whose clients include his parents, his wife's parents, and his brother and sister. Under the Code and Standards, Reza should treat all his clients fairly by:
not treating his family member accounts any differently from other client accounts.
Elias is a well-known analyst whose area of expertise is the telecommunications industry. He has decided to change his recommendation on one of the dominant companies in the market from "buy" to "hold." Elias's best course of action is to disclose this changed recommendation:
on his firm's website first.
Amelia receives new information that changes her opinion of the value of a security. To comply with the Code and Standards, she must provide this information to:
only clients for whom this investment is suitable.
When Kamila receives an allocation of a highly sought-after initial public offering (IPO) to distribute to her clients, she can distribute the allocation:
only in a fair manner to all clients for whom the investments are appropriate.
Rimas believes that one of her investment advisory clients is engaged in tax fraud based on documents she has received from the client when Rimas was updating the client's investment policy statement. Under the Code and Standards, Rimas' best course of action is to:
report the tax fraud and share the confidential documents with authorities.
Communication of an investment recommendation by an investment adviser to clients should NOT be based on:
the fees paid by the client to the adviser.
An investment manager can judge the suitability of a particular investment for a client regardless of:
the suitability of the investment for the manager's other clients
Which of the following best describes a CFA Institute member's duty under CFA Institute Standard III(E): Preservation of Confidentiality? Members are required to keep client information confidential:
unless client requests the information be shared with others.
