Ethics

ASSET MANAGER CODE 'GENERAL PRINCIPLES OF CONDUCT' states

Managers have the following responsibilities to their clients. Managers must: 1. Act in a professional and ethical manner at all times. 2. Act for the benefit of clients. 3. Act with independence and objectivity. 4. Act with skill, competence, and diligence. 5. Communicate with clients in a timely and accurate manner. 6. Uphold the applicable rules governing capital markets.

THE CODE OF ETHICS, STANDARDS OF PROFESSIONAL CONDUCT ON INTEGRITY OF CAPITAL MARKETS STATE

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. 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.

Negative-Screening Investment Approach

Excluding companies or sectors based on business activities or environmental or social concerns

Full integration

Including ESG factors into the traditional financial analysis of individual stocks

Risk factor/risk premium investing

Including ESG information in the analysis of systematic risks such as smart beta or factor investing

Positive Screening

Including sectors or companies based on specific ESG criteria

Relative/best-in-class screening

Investing in sectors, companies, or projects based on ESG performance relative to industry peers

THE CODE OF ETHICS, STANDARDS OF PROFESSIONAL CONDUCT ON 'RESPONSIBILITIES AS A CFA INSTITUTE MEMBER OR CFA CANDIDATE' STATE

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 the CFA Institute programs. B. Reference to CFA Institute, the CFA Designation, and the CFA Program. When referring to CFA Institute, CFA Institute member- ship, 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.

THE CODE OF ETHICS, STANDARDS OF PROFESSIONAL CONDUCT ON 'INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS' STATE

A. Diligence and Reasonable Basis. Members and Candidates must: 1. Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions. 2. Have a reasonable and adequate basis, supported by appro- priate research and investigation, for any investment analysis, recommendation, or action. B. Communication with Clients and Prospective Clients. Members and Candidates must: 1. 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 port- folios and must promptly disclose any changes that might materially affect those processes. 2. Disclose to clients and prospective clients significant limita- tions and risks associated with the investment process. 3. 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. 4. Distinguish between fact and opinion in the presentation of investment analysis and recommendations. C. Record Retention. Members and Candidates must develop and maintain appropriate records to support their investment anal- yses, recommendations, actions, and other investment-related communications with clients and prospective clients.

THE CODE OF ETHICS, STANDARDS OF PROFESSIONAL CONDUCT ON 'CONFLICTS OF INTEREST' STATE

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 inter- fere 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. 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. 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.

THE CODE OF ETHICS, STANDARDS OF PROFESSIONAL CONDUCT ON PROFESSIONALISM STATE

A. Knowledge of the Law. Members and Candidates must under- stand 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 organiza- tion, 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 regula- tion. Members and Candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations. B. Independence and Objectivity. Members and Candidates must use reasonable care and judgment to achieve and maintain inde- pendence 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. C. Misrepresentation. Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities. 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 repu- tation, integrity, or competence.

THE CODE OF ETHICS, STANDARDS OF PROFESSIONAL CONDUCT ON 'DUTIES TO CLIENTS' STATE

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. B. Fair Dealing. Members and Candidates must deal fairly and objec- tively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities. C. Suitability. 1. When Members and Candidates are in an advisory relationship with a client, they must: a. 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. b. 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. c. Judge the suitability of investments in the context of the client's total portfolio. 2. When Members and Candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must make only investment recommendations or take only invest- ment actions that are consistent with the stated objectives and constraints of the portfolio. D. Performance Presentation. When communicating investment performance information, Members and Candidates must make reasonable efforts to ensure that it is fair, accurate, and complete. 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.

THE CODE OF ETHICS, STANDARDS OF PROFESSIONAL CONDUCT ON 'DUTIES TO EMPLOYERS' STATE

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 abili- ties, divulge confidential information, or otherwise cause harm to their employer. B. Additional Compensation Arrangements. Members and Candi- dates 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. 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.

Thematic investment

Investing in themes or assets related to ESG factors

ASSET MANAGER CODE 'DISCLOSURES' SECTION states

Managers must: 1. Communicate with clients on an ongoing and timely basis. 2. Ensure that disclosures are truthful, accurate, complete, and understandable and are presented in a format that communicates the information effectively. 3. Include any material facts when making disclosures or providing information to clients regarding themselves, their personnel, investments, or the investment process. 4. Disclose the following: a. Conflicts of interests generated by any relationships with brokers or other entities, other client accounts, fee structures, or other matters. b. Regulatory or disciplinary action taken against the Manager or its personnel related to professional conduct. c. The investment process, including information regarding lock-up periods, strategies, risk factors, and use of derivatives and leverage. d. Management fees and other investment costs charged to investors, including what costs are included in the fees and the methodologies for determining fees and costs. e. The amount of any soft or bundled commissions, the goods and/or services received in return, and how those goods and/or services benefit the client. f. The performance of clients' investments on a regular and timely basis. g. Valuation methods used to make investment decisions and value client holdings. h. Shareholder voting policies. i. Trade allocation policies. j. Results of the review or audit of the fund or account. k. Significant personnel or organizational changes that have occurred at the Manager. l. Risk management processes.

ASSET MANAGER CODE 'RISK MANAGEMENT, COMPLIANCE, AND SUPPORT' SECTION states

Managers must: 1. Develop and maintain policies and procedures to ensure that their activities comply with the provisions of this Code and all applicable legal and regulatory requirements. 2. Appoint a compliance officer responsible for administering the policies and procedures and for investigating complaints regarding the conduct of the Manager or its personnel. 3. Ensure that portfolio information provided to clients by the Manager is accurate and complete and arrange for independent third-party confirmation or review of such information. 4. Maintain records for an appropriate period of time in an easily accessible format. 5. Employ qualified staff and sufficient human and technological resources to thoroughly investigate, analyze, implement, and monitor investment decisions and actions. 6. Establish a business-continuity plan to address disaster recovery or periodic disruptions of the financial markets. 7. Establish a firmwide risk management process that identifies, measures, and manages the risk position of the Manager and its investments, including the sources, nature, and degree of risk exposure.

ASSET MANAGER CODE 'TRADING' SECTION states

Managers must: 1. Not act or cause others to act on material nonpublic information that could affect the value of a publicly traded investment. 2. Give priority to investments made on behalf of the client over those that benefit the Managers' own interests. 3. Use commissions generated from client trades to pay for only investment-related products or services that directly assist the Manager in its investment decision making process, and not in the management of the firm. 4. Maximize client portfolio value by seeking best execution for all client transactions. 5. Establish policies to ensure fair and equitable trade allocation among client accounts.

ASSET MANAGER CODE: LOYALTY TO CLIENTS states

Managers must: 1. Place client interests before their own. 2. Preserve the confidentiality of information communicated by clients within the scope of the Manager-client relationship. 3. Refuse to participate in any business relationship or accept any gift that could reasonably be expected to affect their independence, objectivity, or loyalty to clients.

ASSET MANAGER CODE 'PERFORMANCE & VALUATION' SECTION states

Managers must: 1. Present performance information that is fair, accurate, relevant, timely, and complete. Managers must not misrepresent the performance of individual portfolios or of their firm. 2. Use fair-market prices to value client holdings and apply, in good faith, methods to determine the fair value of any securities for which no independent, third-party market quotation is readily available.

ASSET MANAGER CODE INVESTMENT PROCESS AND ACTIONS states

Managers must: 1. Use reasonable care and prudent judgment when managing client assets. 2. Not engage in practices designed to distort prices or artificially inflate trading volume with the intent to mislead market participants. 3. Deal fairly and objectively with all clients when providing investment information, making investment recommendations, or taking investment action. 4. Have a reasonable and adequate basis for investment decisions. 5. When managing a portfolio or pooled fund according to a specific mandate, strategy, or style: a. Take only investment actions that are consistent with the stated objectives and constraints of that portfolio or fund. b. Provide adequate disclosures and information so investors can consider whether any proposed changes in the investment style or strategy meet their investment needs. 6. When managing separate accounts and before providing investment advice or taking investment action on behalf of the client: a. Evaluate and understand the client's investment objectives, tolerance for risk, time horizon, liquidity needs, financial constraints, any unique circumstances (including tax considerations, legal or regulatory constraints, etc.), and any other relevant information that would affect investment policy. b. Determine that an investment is suitable to a client's financial situation.

Engagement/active ownership

Using shareholder power to influence corporate behavior to achieve targeted ESG objectives along with financial returns

Overlay/portfolio tilt

Using strategies or products to achieve certain ESG characteristics for a fund or portfolio

Which of the following is NOT in violation of Standard VII (B), Reference to CFA Institute, the CFA Designation, and the CFA Program? a. "I passed Level I of the CFA exam on my first attempt." b. "I am CFA, Level I qualified." c. "I am a candidate in the CFA Program - the most rigorous professional designation in the world."

a. "I passed Level I of the CFA exam on my first attempt." Statement "a" is a statement of fact and is permissible so long as the statement is not linked to superior performance or abilities. Statement "b" is incorrect since no designation exists for passing Level I, Level II or Level III of the exam and since the CFA designation should not be referred to as any form of a degree. Statement "c" is incorrect in referencing the CFA Program as "...most rigorous..." While the CFA Program can be referred to as rigorous, there is no basis for considering it to be the most rigorous.

Joe Farin, a CFA member, is considering his firm's policies on voting proxies. His firm is becoming concerned with the high cost of voting proxies. In considering changes to the firm's policies, which of the following statements in the firm's manual is not consistent with the Code and Standards and could, therefore, be eliminated by the firm while still remaining in conformance with the Code? a. Advisors should vote all proxies whether or not they benefit the client b. It is our duty of loyalty to vote proxies in an informed and responsible manner c. An advisor acting as a fiduciary should not vote blindly with management on nonroutine governance issues d. Proxies have economic value to a client, and our firm must ensure that they properly safeguard and maximize this value

a. Advisors should vote all proxies whether or not they benefit the client From Standard III(A) in the SOPH: A cost-benefit analysis may show that voting all proxies may not benefit the client, so voting proxies may not be necessary in all instances. Thus Statement D can be eliminated and the firm would still be in compliance with the Code A appears in the Code: "Part of a member's or candidate's duty of loyalty includes voting proxies in an informed and responsible manner." B appears in the Code: "Proxies have economic value to a client, and members and candidates must ensure that they properly safeguard and maximize this value." C appears in the Code: "An investment manager who fails to vote, casts a vote without considering the impact of the question, or votes blindly with management on nonroutine governance issues (e.g., a change in company capitalization) may violate this standard."

Dennis Elliot has hired Sam Chisolm who previously worked for a competing firm. Chisolm left his former firm after 18 years of employment. When Chisolm begins working for Elliot, he wants to contact his former clients because he knows them well and is certain that many will follow him to his new employer. Is Chisolm in violation of the standard IV(A) if he contacts his former clients? There is no non-compete agreement. a. Chisolm is free to use public information after departing to contact former clients without violating the Standard b. Client records created by Chisolm without the aid of his previous firm are considered his property and he may contact his former clients using any client list in his possession after, but not before, he leaves the firm c. Because client records are the property of the firm, Chisolm cannot contact his former clients for any reason d. Chisolm cannot contact his previous clients even if he does so based on his memory of who those clients are and where they live

a. Chisolm is free to use public information after departing to contact former clients without violating the Standard From section IV(A) the Standards of Practice Handbook - "Members and candidates are free to use public information after departing to contact former clients without violating Standard IV(A) as long as there is no specific agreement not to do so." Choice D is clearly the only correct answer. Each of the other choices is contrary to Choice D.

Tom Jones, CFA, has started a new investment management firm. Jones' first task is to create the firm's policies dealing with confidentiality of client information. He wants to make sure they are consistent with the CFA Code and Standards. Which of the following policies is MOST consistent and therefore is the one Jones should adopt? a. Client confidentiality extends to both existing and potential clients b. If a client does not specify confidentiality in their IPS, the firm is not obligated to keep the client information confidential c. If a client is found to be engaging in illegal activities that information must be reported to the firm but is to be kept confidential

a. Client confidentiality extends to both existing and potential clients According to Standard III(E): 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; Disclosure is required by law; or The client or prospective client permits disclosure of the information. According to this wording, choice B is incorrect and would violate Standard III(E). Choice C twists the standard a bit. According to 3 above, information can be disclosed if the client permits it. However, this is no provision that allows for breaching confidentiality in cases where confidentiality is not requested by the client as in the IPS. While some may argue that Choice A is not entirely correct since it does not include former clients but it is a better choice since it does not violate Standard III(E). It also is entirely consistent with the spirit of the Code and Standards.

Jim recently joined a new firm. He is reviewing the firm's policies regarding disclosure of conflicts of interest. Each of the following statements closely mirrors the responsibilities of Members and Candidates according to the Code and Standards except one. Which does not match the Code and Standards? a. Employers have the responsibility of determining how often, in what manner, and in what particular circumstances the disclosure of conflicts must be made b. Best practices dictate updating disclosures when the nature of a conflict of interest changes materially c. Employees must make full and fair disclosure of all matters that clearly impair their independence and objectivity d. In making and updating disclosures of conflicts of interest, employees should err on the side of caution to ensure that conflicts are effectively communicated

a. Employers have the responsibility of determining how often, in what manner, and in what particular circumstances the disclosure of conflicts must be made Statements B and D come straight from the SOPH Standard VI(A) - "To be effective, disclosures must be prominent and must be made in plain language and in a manner designed to effectively communicate the information. Members and candidates have the responsibility of determining how often, in what manner, and in what particular circumstances the disclosure of conflicts of interest must be made. (Response B) Best practices dictate updating disclosures when the nature of a conflict or interest changes materially - for example, if the nature of a conflict of interest deepens through the introduction of bonuses based on each quarter's profits as opposed to the previous review based on annual profits. (Response D) In making and updating disclosures of conflicts of interest, members and candidates should err on the side of caution to ensure that conflicts are effectively communicated." Statement C comes from the description of Standard 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..." The answer that does not match the Code and Standard is A - the responsibility is not on EMPLOYERS to determine how often, in what manner, and in what particular circumstances the disclosure must be made, but the responsibility is on the MEMBERS and CANDIDATES.

Tom, a Member, is an analyst in the big-box retail space. While at dinner he overhears a conversation indicating one of the firms he is covering is having inventory problems due to low customer traffic. The next day, Tom contacts the firm's investor relations department and presses them on the details, telling them he plans to issue a downward revised research report based on what he heard. The department describes the issue, under conditions of confidentiality, to Tom in greater detail so that he can more accurately write his research report. Which of the following is accurate? a. Tom has violated the Code and Standards by inducing the company insider to privately disclose information that likely would be considered material and nonpublic b. Tom has complied with the Code and Standards by attempting to achieve public dissemination of information that likely would be considered material and nonpublic c. Tom has complied with the Code and Standards because this situation falls under the Mosaic theory

a. Tom has violated the Code and Standards by inducing the company insider to privately disclose information that likely would be considered material and nonpublic A is correct because Tom is trading on material non-public information. There are a couple of elements here that are in violation of the Code. First of all, his downward revision was precipitating by him overhearing a conversation. The information intimated in the conversation appears to be both material and non-public. Secondly, his inducing the investor relations department to provide him with confidential information involves selective disclosure. That is, the information being disclosed to him (once again, both material and nonpublic) has not been publicly disseminated. This is somewhat akin to Example 3 of Standard II(A)dealing with selective disclosure. B is incorrect because he has not attempted to achieve public dissemination. From the SOPH: "If a member or candidate determines that information is material, the member or candidate should make reasonable efforts to achieve public dissemination of the information. This effort usually entails encouraging the issuer company to make the information public. If public dissemination is not possible, the member or candidate must communicate the information only to the designated supervisory and compliance personnel within the member's or candidate's firm and must not take investment action or alter current investment recommendations on the basis of the information (italics added)." C is incorrect because from the SOPH, "A financial analyst gathers and interprets large quantities of information from many sources. The analyst may use significant conclusions derived from the analysis of public and nonmaterial nonpublic information as the basis for investment recommendations and decisions even if those conclusions would have been material inside information had they been communicated directly to the analyst by a company. Under the "mosaic theory," financial analysts are free to act on this collection, or mosaic, of information without risking violation."

Which of the following is not accurate relating to the Standard dealing with Duties of Supervisors? a. Establishing and implementing written compliance procedures is sufficient to fulfill the duty required by the Standard b. If a member or candidate has adopted reasonable procedures and taken steps to institute an effective compliance program, then the member or candidate may not be in violation of Standard if they do not detect violations that occur despite these efforts c. A member has exercised reasonable supervision if they establish and implement written compliance procedures and ensure that those procedures are followed through periodic review d. A member or candidate may be in violation of the Standard he or she knows or should know that the procedures designed to detect and prevent violations are not being followed

a. Establishing and implementing written compliance procedures is sufficient to fulfill the duty required by the Standard Items A, B and D are almost direct quotes from the Standard: "Supervision Includes Detection: Members and candidates with supervisory responsibility must also make reasonable efforts to detect violations of laws, rules, regulations, firm policies, and the Code and Standards. The supervisors exercise reasonable supervision by establishing and implementing written compliance procedures and ensuring that those procedures are followed through periodic review. If a member or candidate has adopted reasonable procedures and taken steps to institute an effective compliance program, then the member or candidate may not be in violation of Standard IV(C) if he or she does not detect violations that occur despite these efforts. The fact that violations do occur may indicate, however, that the compliance procedures are inadequate. In addition, in some cases, merely enacting such procedures may not be sufficient to fulfill the duty required by Standard IV(C). A member or candidate may be in violation of Standard IV(C) if he or she knows or should know that the procedures designed to promote compliance, including detecting and preventing violations, are not being followed."

Which of the following statements is not correct according to the Code and Standards? a. Members and Candidates may not undertake transactions in accounts for which they are a beneficial owner even after their clients and employers have had adequate opportunity to act on the recommendation b. Member's and Candidate's personal transactions include those made for accounts in which the member or candidate has an indirect pecuniary interest such as a retirement account c. Member and Candidate managed accounts for family members should be treated like any other of the firm's client accounts

a. Members and Candidates may not undertake transactions in accounts for which they are a beneficial owner even after their clients and employers have had adequate opportunity to act on the recommendation A is incorrect. The statement from the SOPH Standard VI(B) states "Members or candidates may undertake transactions for which they are a beneficial owner only after their clients and employers have had adequate opportunity to act on a recommendation." The next sentence states "Personal transactions include those made for the member's or candidate's own account, for family (including spouse, children, and other immediate family members) accounts, and for accounts in which the member or candidate has a direct or indirect pecuniary interest, such as a trust or retirement account." Thus B is correct. The next sentence states "Family accounts that are client accounts should be treated like any other firm account and should neither be given special treatment nor be disadvantaged because of the family relationship." Thus C is correct.

Terry Henderson, CFA, recently hired an analyst who has been barred from working in the financial industry. Terry hired the analyst on the recommendation of a friend at another firm. Terry's action is considered a violation of which section of the CFA Code and Standard as it relates to Professionalism? a. Misconduct b. Independence and objectivity c. Misrepresentation

a. Misconduct Recommended Procedures for Compliance In addition to ensuring that their own behavior is consistent with Standard I(D), to prevent general misconduct, members and candidates should encourage their firms to adopt the following policies and procedures to support the principles 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.

Referring to the vignette, is Mr. Thomas's statement about the weakness of the US Dollar consistent with CFA Institute Standards? a. No, Mr. Thomas has not stated that it is his opinion that the US dollar will weaken. b. No, because Mr. Thomas did not obtain this information from the third-party research service. c. Yes, because budget deficits and trade deficits will cause the US dollar to decline.

a. No, Mr. Thomas has not stated that it is his opinion that the US dollar will weaken. Standard V(B) requires that opinion be separated from fact. Violations often occur when reports fail to separate the past from the future by not indicating that earnings estimates, changes in the outlook for dividends, and/or future market price information are opinions subject to future circumstances. It is Mr. Thomas's opinion that the US dollar will weaken and is not a fact. B is incorrect because it doesn't matter what the source of the information was, in this case. Even if it was from a third-party and was opinion it would have to be disclosed as opinion. C is incorrect because there is not a one to one relationship between the US dollar value and budget deficits and trade deficits.

Which of the following is not a correct statement regarding loyalty to clients in the Asset Manager Code? a. To avoid the appearance of a conflict, Managers must refuse to accept gifts or entertainment from service providers, potential investment targets, or other business partners b. Managers should consider creating specific limits for accepting gifts and prohibit the acceptance of any cash gifts c. Employees should be required to document and disclose to the Manager, through their supervisor, the firm's compliance office, or senior management, the acceptance of any gift or entertainment

a. To avoid the appearance of a conflict, Managers must refuse to accept gifts or entertainment from service providers, potential investment targets, or other business partners In the Asset Manager Code of Professional Conduct, A. Loyalty to Clients, managers are provided actions that maintain an appropriate relationship with their clients. Accepting gifts is always tricky, and the focus on material is driven by any gift that could reasonably be expected to affect their independence, objectivity, or loyalty to clients. The Appendix specifically describes responses B and C, and they are accurate. Managers are allowed to accept gifts of a minimal value, so statement A is inaccurate.

Patrick Whitty, CFA is research analyst for John Cadet Investment Advisory LLC covering the coal industry. He is invited to a fact-finding trip to West Virginia by the Coal Miner Association (CMA), which has planned the trip for many industry analysts. The CMA graciously pays for travel expenses, including private helicopters to various isolated coal mines. At the conclusion of the trip, the CMA offers each advisor commercial airline tickets and hotel rooms to a meet-and-greet at the famous Greenbrier Hotel and Resort, where analysts can get to better know industry players. Which of the following best describes Patrick's situation? a. Patrick is not in violation for accepting the helicopter rides, but accepting both the tickets and rooms is in violation of the Code and Standards. b. Patrick is in violation of the Code and Standards for accepting the tickets to the meet-and-greet and rooms at the Greenbrier, as well as the helicopter rides. c. Patrick is not in violation of the Code and Standards. d. Patrick is in violation of the Code and Standards for accepting the private helicopter rides.

a. Patrick is not in violation for accepting the helicopter rides, but accepting both the tickets and rooms is in violation of the Code and Standards. This is covered in Standard I.B. The Standards allow for use of provided transportation when alternative commercial transportation is not available. In the case of the helicopter tour, it's difficult to imagine a commercial alternative exists. Hence the helicopter tour seems reasonable. However, the rooms at the "famous Greenbrier Hotel and Resort" represent a potential for creating a conflict of interest and, thus, should not have been accepted. Here are the SOPH excerpts: "I.B Travel Funding. The benefits related to accepting paid travel extend beyond the cost savings to the member or candidate, such as the chance to talk exclusively with the executives of a company. The problem is that members and candidates may be influenced by these discussions when flying on a corporate or chartered jet. Best practice dictates that members and candidates always use commercial transportation rather than accept paid travel arrangements from an outside company. Should commercial transportation be unavailable, members and candidates may accept modestly arranged travel to participate in appropriate information-gathering events, such as a property tour." "Restrict special cost arrangements: When attending meetings at an issuer's headquarters, members and candidates should pay for commercial transportation and hotel charges. No corporate issuer should reimburse members or candidates for air transportation. Members and candidates should encourage issuers to limit the use of corporate aircraft to situations in which commercial transportation is not available or in which efficient movement could not otherwise be arranged. Members and candidates should take particular care that when frequent meetings are held between an individual issuer and an individual member or candidate, the issuer should not always host the member or candidate"

Which of the following is a market factor that can affect stakeholder relationships and corporate governance? a. Shareholder activism b. Legal environment c. Corporate Governance Industry

a. Shareholder activism Shareholder activism is the only market factor of those listed. The others are legal or regulatory.

Policies on related party transactions are mechanisms for managing which principal-agent conflict? a. Shareholders/Management b. Management/Board c. Controlling/Minority shareholders d. Shareholders/Creditors

a. Shareholders/Management Related party transactions present the greatest danger when management uses them for their own benefit and therefore don't act in the best interest of shareholders.

Information asymmetry likely is most significant within which principal-agent conflict? a. Shareholders/Management b. Management/Board c. Controlling/Minority shareholders d. Shareholders/Creditors

a. Shareholders/Management The split between shareholders and management is the widest, with the Board standing in between to monitor and guide management on behalf of owners. The Board hires management so statement B is not correct. Controlling and minority shareholders might have conflicting goals but they would have similar information so C is incorrect. Shareholders don't necessarily have better information than creditors so D is incorrect.

Benjamin is a portfolio manager for a bank. He receives additional monetary compensation from his employer when he is successful in referring customers to other areas within the bank. Which of the following is accurate as it relates to the Code and Standards? a. Since Benjamin will receive additional compensation for making such referrals, best practice dictates Benjamin disclose to clients he is being compensated for doing so even though the compensation comes from within the bank itself b. Since Benjamin is selling the bank's proprietary products and services he needs to make a disclose to potential clients that he will be compensated for the referral but doesn't need to make disclosures to existing clients since they will understand such an arrangement likely exists c. Since Benjamin is selling the bank's proprietary products and services he does not need to disclose to either existing or potential clients that he will be compensated for doing so since they will understand such an arrangement likely exists

a. Since Benjamin will receive additional compensation for making such referrals, best practice dictates Benjamin disclose to clients he is being compensated for doing so even though the compensation comes from within the bank itself This question tests Standard VI(C) which states: "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." Accordingly, Benjamin should make the appropriate disclosures to clients and prospective clients even though the referral fee is made internally.

John, a Member, lives in Canada but does business in Russia with clients who are citizens of Russia. The security laws in Canada are more strict than the Code and Standards while the laws in Russia are less strict. Canadian laws apply but state that the law of the client's home country governs. John should adhere to: a. The Code and Standards b. Russian laws c. Canadian laws

a. The Code and Standards In this case, member resides in MS (Canada), does business in LS (Russia) with clients who are citizens of LS (Russia). It says MS (Canadian) laws apply but state that the law of the client's home country (LS, Russia) governs. According to Exhibit 1, item C is correct: "Applicable Law: Member resides in MS country, does business in LS country with a client who is a citizen of LS country; MS law applies, but it states that the law of the client's home country governs. Duties: Member must adhere to the Code and Standards. Explanation: Because applicable law states that the law of the client's home country governs (which is less strict than the Code and Standards), member must adhere to the Code and Standards."

Which of the following would not be considered a factor that would dictate the nature of the diligence and thoroughness of the research and the level of investigation required by Standard V(A)? a. The application of Standard V(A) depends on the investment policy statement of the client b. The application of Standard V(A) depends on the role of the member in the investment decision-making process c. The application of Standard V(A) depends on the support and resources provided by the member's employer.

a. The application of Standard V(A) depends on the investment policy statement of the client Items B and C are very close to direct quotes from the first paragraph of section V(A). Item A is not included in that discussion. Here is that paragraph: "The application of Standard V(A) depends on the investment philosophy the member, candidate, or firm is following, the role of the member or candidate in the investment decision-making process, and the support and resources provided by the member's or candidate's employer. These factors will dictate the nature of the diligence and thoroughness of the research and the level of investigation required by Standard V(A)."

Which of the following statements dealing with the Standard Duties to Employers is accurate? a. When an employee leaves its employer, simple knowledge of the names and existence of former clients is generally not confidential information unless deemed such by an agreement or by law b. It is the responsibility of the employer, not the members and candidates, to determine whether the member or candidate is an employee or independent contractor in order to determine the applicability of the Standard c. A member or candidate's personal interests, as well as the interests of his or her employer, take precedence over protecting the integrity of capital markets and the interests of the clients d. The term "firm records" does not extend to work performed on behalf of the firm stored on a home computer for the member or candidate's convenience while employed

a. When an employee leaves its employer, simple knowledge of the names and existence of former clients is generally not confidential information unless deemed such by an agreement or by law Choice D is the correct answer and comes verbatim from the Standards of Practice Handbook Standard IV(A) "...simple knowledge of the names and existence of former clients is generally not confidential information unless deemed such by an agreement of by law." Choice A is incorrect as stated in the SOPH - "Members and candidates must always place the interests of clients above the interests of their employer but should also consider the effects of their conduct on the sustainability and integrity of the employer firm." Choice B is incorrect. From the SOPH, Example 2 - "Employer records include items stored in hard copy or any other medium (e.g., home computers, portable storage devices, cell phones). Choice C is incorrect. From the SOPH - "Members or candidates must determine whether they are employees or independent contractors to determine the applicability of Standard IV(A).

Which of the following is NOT an accurate statement of the duties to clients imposed by the CFA Code and Standards? a. When the manager is responsible for the portfolios of pension plans or trusts, the duty of loyalty is owed to the client, not the ultimate beneficiaries b. All members and candidates must understand and adhere to any legally imposed fiduciary responsibility they assume with each client c. The duty required in fiduciary relationships exceeds what is acceptable in many other business relationships because the fiduciary is in an enhanced position of trust d. Fiduciary duties are often imposed by law or regulation when an individual or institution is charged with the duty of acting for the benefit of another party

a. When the manager is responsible for the portfolios of pension plans or trusts, the duty of loyalty is owed to the client, not the ultimate beneficiaries From the Code and Standards III(A) - "When the manager is responsible for the portfolios of pension plans or trusts, however, the client is not the person or entity who hires the manager, but, rather, the beneficiaries of the plan or trust. The duty of loyalty is owed to the ultimate beneficiaries." The other statements are all true statements and come directly from the Standards of Practice Handbook.

Tina Uden, CFA, just hung up the phone after visiting with a client's junior assistant. The junior assistant directed Tina to purchase stock in a biomedical research company for this client's account. Tina knows the stock is highly risky and is not appropriate given the client's IPS and existing portfolio. Tina must: a. refuse to execute the order without further consultation with the client b. ignore the client's wishes and instead purchase shares in an ETF that is less risky but that tracks this industry c. exercise her duty of loyalty and purchase the shares according to her clients wishes d. accept the client's wishes and purchase the stock as the burden of reasonable care shifts to the client in this case

a. refuse to execute the order without further consultation with the client What is being described is a situation with suitability. From the Code and Standards III(C): "In cases of unsolicited trade requests that a member or candidate knows are unsuitable for a client, the member or candidate should refrain from making the trade until he or she discusses the concerns with the client. The discussions and resulting actions may encompass a variety of scenarios depending on how the requested unsuitable investment relates to the client's full portfolio.

Poor audit procedures would be a symptom of a. weak control systems b. ineffective decision making c. legal, regulatory and reputational risks d. default and bankruptcy risks

a. weak control systems Audits relate directly to internal controls and the quality of each go hand in hand

Which of the following is not a correct statement from the Code and Standards? a. As with determining the suitability of an investment for the client, the necessary level of research and analysis will be the same regardless of the product, security, or service being offered b. In providing an investment service, members and candidates typically use a variety of resources, including company reports, third-party research, and results from quantitative models. A reasonable basis is formed through a balance of these resources appropriate for the security or decision being analyzed c. Standard V(B) states that members and candidates should communicate in a recommendation the factors that were instrumental in making the investment recommendation. A critical part of this requirement is to distinguish clearly between opinions and facts

aa. As with determining the suitability of an investment for the client, the necessary level of research and analysis will be the same regardless of the product, security, or service being offered Answer A is a direct contradiction of the following statement from V(B): "As with determining the suitability of an investment for the client, the necessary level of research and analysis will differ with the product, security, or service being offered." Answer B is directly from the section entitled "Defining Diligence and Reasonable Basis" from Standard V(A). Answer C is directly from the section entitled "Guidance" from Standard V(B).

Referring to the vignette, is Ankany's purchase of ADRs on its own behalf and Mr. Thomas's use of the CFA designation consistent with CFA Institute Standards? a. Ankany's purchase of ADRs is not consistent. Mr. Thomas's use of the CFA designation is consistent. b. Ankany's purchase of ADRs is consistent. Mr. Thomas's use of the CFA designation is not consistent. c. Both Ankany's purchase of ADRs and Mr. Thomas's use of the CFA designation are consistent.

b. Ankany's purchase of ADRs is consistent. Mr. Thomas's use of the CFA designation is not consistent. Ankany's purchase of ADRs is consistent with standards because Ankany invests its own capital only after all of its clients orders are placed. As stated in Standard VI(B), "Client transactions must take precedence over transactions made on behalf of the member's or candidate's firm or personal transactions." Mr. Thomas's use of the CFA designation is not consistent with the standards. Standard VII(B) states that "once granted the right to use the designation, individuals must also satisfy the CFA Institute membership requirements." Those membership requirements include paying applicable CFA Institute membership dues and remitting a completed Professional Conduct Statement on an annual basis.

Which of the following is not correct? a. Corporate governance is the system of internal controls and procedures by which individual companies are managed b. Corporate governance is the arrangement of checks, balances, and incentives a company needs to manage the conflicting interests between management and inside shareowners c. Corporate governance is designed to prevent one group from expropriating the cash flows and assets of one or more other groups d. Corporate governance provides a framework that defines the rights, roles and responsibilities of different groups within an organization

b. Corporate governance is the arrangement of checks, balances, and incentives a company needs to manage the conflicting interests between management and inside shareowners Statement B refers to a conflict between management and inside shareowners. Management typically is a group that owns shares and are thus insider shareowners. They wouldn't have a conflict with themselves. Statement C is okay because corporate governance is important in making sure one group does not take advantage of another. The rest of the statements are accurate from the reading.

Which of the following is not a policy or procedure Members and candidates should encourage their firms to consider to support the principles of Standard V(A) Diligence and Reasonable Basis? a. Establish a policy requiring that research reports and recommendations have a basis that can be substantiated as reasonable and adequate b. Ensure each research report or recommendation is reviewed by a peer analyst prior to external circulation to determine whether they meet the criteria as established in the policy c. Develop measurable criteria for assessing the quality of research, including the reasonableness and adequacy of the basis for any recommendation and the accuracy of recommendations over time d. implement compensation arrangements that depend on measurable criteria and that are applied consistently to all research analysts

b. Ensure each research report or recommendation is reviewed by a peer analyst prior to external circulation to determine whether they meet the criteria as established in the policy Statements A, C and D are direct quotes from the Standard. Note that choice B is incorrect because it suggests reports be reviewed by peer analysts. This is the least correct choice since the standard does not suggest reports be reviewed by peer analysts. Here is the relevant section: "Recommended Procedures for Compliance Members and candidates should encourage their firms to consider the following policies and procedures to support the principles of Standard V(A): Establish a policy requiring that research reports, credit ratings, and investment recommendations have a basis that can be substantiated as reasonable and adequate. An individual employee (a supervisory analyst) or a group of employees (a review committee) should be appointed to review and approve such items prior to external circulation to determine whether the criteria established in the policy have been met. Develop measurable criteria for assessing the quality of research, the reasonableness and adequacy of the basis for any recommendation or rating, and the accuracy of recommendations over time. In some cases, firms may consider implementing compensation arrangements that depend on these measurable criteria and that are applied consistently to all related analysts."

Which of the following statements is accurate? a. When a member or candidate leaves a firm to seek other employment, the member or candidate cannot take the property of the firm unless they are merely copies of supporting records of the member's or candidate's work b. For future use, the member or candidate must re-create the supporting records at the new firm with information gathered through public sources or directly from the covered company and not from memory or sources obtained at the previous employer c. The member or candidate can use historical recommendations or research reports created at the previous firm if the supporting documentation is available at the firm where the member or candidate created the record of performance

b. For future use, the member or candidate must re-create the supporting records at the new firm with information gathered through public sources or directly from the covered company and not from memory or sources obtained at the previous employer The correct answer, C, is a direct quote from the SOPH. B is incorrect because the SOPH states "The member or candidate cannot use historical recommendations or research reports created at the previous firm because the supporting documentation is unavailable." A is incorrect because the SOPH states "As a general matter, 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. When a member or candidate leaves a firm to seek other employment, the member or candidate cannot take the property of the firm, including originals or copies of supporting records of the member's or candidate's work, to the new employer without the express consent of the previous employer."

John Mullins, CFA is a research analyst performing an industry analysis on the oil industry using financial reports, trade journals, and visits to competitors and suppliers, as well as conversations with insiders. He is careful to only use information that has a factual basis for the report, and once complete, John disseminates his report to all his clients via email. Which of the following best describes the above situation? a. John did not violate the Code and Standards because he used the mosaic theory for his research report but violated the Standards in the manner in which he disseminated his report b. John did not violate the Code and Standards because he used the mosaic theory for his research report and because he disseminated his research report to all his clients simultaneously c. John did not violate the Code and Standards because he disseminated his research report to all his clients simultaneously but violated the Standards in the manner in which he formed the basis for his report d. John violated the Code and Standards by failing to include both fact and opinion in his research report

b. John did not violate the Code and Standards because he used the mosaic theory for his research report and because he disseminated his research report to all his clients simultaneously Some may have felt that conversations with insiders violated the Code and Standards. As defined by the SEC, an insider is a director or senior officer of a company, as well as any person or entity that beneficially owns more than 10% of a company's voting shares. Research analysts can certainly talk to insiders, use that information and not violate the Standards. In fact, speaking with insiders is encouraged as a part of an analyst's role. Of course, an analyst cannot use material non-public information to make a recommendation. Remember that there is a difference between insiders and inside information.

Which of the following statements regarding confidentiality relating to CFA exams is not accurate? a. All aspects of an exam, including questions, broad topical areas, and formulas, tested or not tested, are considered confidential until such time as CFA Institute elects to release them publicly b. Standard VII(A) prohibits candidates from discussing non-confidential information or curriculum material with others or in study groups in preparation for the exam c. A goal of the exam-confidentiality requirement is to maintain the integrity and rigor of the exam for future candidates

b. Standard VII(A) prohibits candidates from discussing non-confidential information or curriculum material with others or in study groups in preparation for the exam Note that the question asks which is NOT accurate. Statement A is straight from the standard. Statement B is virtually straight from the standard as well. Statement C goes too far in including non-confidential information as prohibited.

Johnson, CFA, a financial analyst for an investment firm, learns from the investor relations representative for a heavy equipment manufacturer that the manufacturer is finalizing a huge contract to sell its products in China. This information is divulged at the most recent quarterly conference call restricted to leading analysts. Johnson does not know if the company made a more general public announcement of this information. Johnson uses this information to revise his current research report for public distribution from its current "hold" recommendation to a "buy" for the firm's stock. Which of the following statements is true? a. Johnson violated CFA Standards of Professional Conduct because he failed to separate opinion from fact b. Johnson violated CFA Standards of Professional Conduct because he may have used material inside information c. Johnson did not violate CFA Standards of Professional Conduct d. Johnson violated CFA Standards of Professional Conduct because he has a material misrepresentation in his report

b. Johnson violated CFA Standards of Professional Conduct because he may have used material inside information

A firm has adopted the CFA's Asset Manager Code. They make the following statements: "Our firm has adopted the CFA Institute's Asset Manager Code of Professional Conduct. This includes taking the following steps: 1. We have developed policies and procedures to ensure that our activities comply with the provisions of this Code. 2. We have appointed an existing employee to be the compliance officer responsible for administering the policies and procedures. The employee will report directly to the VP in charge of the Asset Management division. 3. We have taken steps to ensure that portfolio information provided to clients is accurate and complete and arranged for our firm's compliance department to review this information. 4. We will maintain paper records for up to three years and electronic records for up to five years. 5. We are committed to employing qualified staff and sufficient human and technological resources to thoroughly investigate, analyze, implement, and monitor investment decisions and actions. 6. Finally, we have established a business-continuity plan to address disaster recovery or periodic disruptions of the financial markets." Is statement number 1 sufficient according to the Recommendations and Guidance for the Asset Manager Code? a. Yes. The firm appears to have developed sufficient policies and procedures to be in compliance with this code. b. Likely not. The firm does not mention it has verified its policies conform to all applicable legal requirements. c. Likely not. The Asset Manager Code spells out set of policies and procedures the firm should follow. If they've developed their own, it is quite possible they are inadequate.

b. Likely not. The firm does not mention it has verified its policies conform to all applicable legal requirements This area is addressed in Section D.1 in the Recommendations and Guidance Appendix. That section states Managers Must: Develop and maintain policies and procedures to ensure that their activities comply with the provisions of this Code and all applicable legal and regulatory requirements. Since response B does not mention the importance of complying with all applicable and regulatory requirements it is the correct choice. Response A is not correct due to the missing reference to applicable legal and regulatory requirements. By referring to the Code in the statement it can be assumed that the set of policies and procedures are adequate, so response C is not correct.

Which of the following is not one of the general principles of conduct in the Asset Manager Code? a. Managers must uphold the applicable rules governing capital markets b. Managers must maintain loyalty to one's employer c. Managers must act with independence and objectivity d. Managers must act with skill, competence, and diligence

b. Managers must maintain loyalty to one's employer There are six General Principles of Conduct. Act in a professional and ethical manner at all times. Act for the benefit of clients. Act with independence and objectivity. Act with skill, competence, and diligence. Communicate with clients in a timely and accurate manner. Uphold the applicable rules governing capital markets. Responses A (principle 6), C (principle 3), and D (principle 4) tie directly to the General Principles of Conduct so are accurate. Response B is inconsistent with principle 2, so is inaccurate.

1 / 1 pts Which statement is not accurate as it relates to duties of supervisors under the Code and Standards? a. 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 b. Members with supervisory responsibility must detect any violations of laws, rules, regulations, firm policies, or the Code and Standards c. Supervisory authority under the Code and Standards Duties to Employees extends to all employees and not only to subordinates who are either CFA Institute members, CFA charterholders, or candidates in the CFA Program

b. Members with supervisory responsibility must detect any violations of laws, rules, regulations, firm policies, or the Code and Standards Answer A is accurate. According to Standard IV(C): "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." Answer B is not accurate. The Code does not require members with supervisory responsibility to detect any violations of applicable laws, rules, regulations, firm policies or the Code and Standards. What it does require - as stated in choice A is that they "must take steps to prevent persons..." Imagine if B was the case. I certainly wouldn't want to ever supervise someone and can't imagine that anyone else would. Answer C is accurate as described in the SOPH - "Any investment professional who has employees subject to his or her control or influence - whether or not the employees are CFA Institute members, CFA charterholders, or candidates in the CFA Program - exercises supervisory responsibility."

Angel Diaz is Head of Marketing for Pi Quantitative Investments. One of Pi Investments' products is a proprietary quantitative methodology used to select the correct asset allocation for its clients' portfolios. This product represents a small portion of Pi's assets under management and has been very successful. Recently, a rival firm has hired away the second-in-command of this product group along with some analysts. Although the Head of the quantitative group remains at Pi Investments, Diaz realizes this could be a major change. Accordingly, he changes existing marketing materials to reflect this personnel change. Has Diaz complied with Standards of Professional Conduct as it relates to communications with clients and prospective clients? a. Yes. b. No. Diaz needs to inform existing clients about these personnel changes. c. No. Diaz needs to also state which firm the former employees left to join.

b. No. Diaz needs to inform existing clients about these personnel changes. This question deals with Standard V: Investment Analysis, Recommendations, and Actions (B) Communications with Clients and Prospective Clients. The standard states that the covered person must "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 (my emphasis added)." The key with this question is that Diaz properly recognizes that these personnel changes could be considered a major change and must be disclosed. However, simply changing the marketing materials is not enough. That change will notify potential clients, but he must notify existing clients also.

Which of the following statements would be NOT be considered to be a violation of Standard VII (B), Reference to CFA Institute, the CFA Designation, and the CFA Program? Statement One: Alton Smith, C.F.A. is one of two charterholders that work in the company. Statement Two: Alton Smith has earned the right to use the Chartered Financial Analyst designation. a. Statement One only. b. Statement Two only. c. Both Statement One and Statement Two. d. Neither Statement One or Statement Two.

b. Statement Two only. Statement One is incorrect because there are no periods after each of the letters in "CFA." Statement Two is not a violation.

Which of the following is not accurate? a. The Board of Directors plays a central role in ensuring the effectiveness of the firm's audit and control functions b. The Board of Directors plays a central role in managing a firm's day to day activities c. The Board of Directors typically ensures a company has appropriate enterprise risk management systems in place d. The Board of Directors most typically owe a duty of care and a duty of loyalty to shareholders and the company

b. The Board of Directors plays a central role in managing a firm's day to day activities Statements A, C and D are almost quotes from the reading. Statement B is incorrect because management manages the day to day activities of the firm. The Board merely hires and monitors management and the monitoring happens sometimes monthly but more often quarterly.

Bill is a Member and a supervisor in a firm that he just recently joined. He is reviewing the firm's written policies and training procedures regarding material nonpublic information. He is also reviewing compliance decisions reached in the past six months. Two of the following would indicate the firm is not correctly following the CFA Code and Standards recommended procedures for compliance. One indicates the firm is following the CFA Code and Standards recommended procedures for compliance. Which one is consistent with the Code and Standards recommended procedures? a. Nine employees were reprimanded for trading in securities on the firm's restricted list. The firm's restricted lists are broadly disseminated to firm personnel. The improper trading would not have been detected had it not been for the required semiannual reports of personal trading by employees. b. Tom was reprimanded for disclosing selected proprietary information to only sell-side clients while at the same time specifically withholding the information from buy-side clients. c. Because the firm's training did not convey he should consult a compliance officer before engaging in questionable transactions Sam, a trainee in his third month with the firm, was not at fault for disclosing material nonpublic information to clients. Sam simply made a mistake by not recognizing the information as material.

b. Tom was reprimanded for disclosing selected proprietary information to only sell-side clients while at the same time specifically withholding the information from buy-side clients.

Which of the following statements made to a client would put a Member or candidate in violation of Standard V Investment Analysis, Recommendations, and Actions? a. We rely heavily on quantitative research models that incorporate the effects of inflation. Inflation forecasts are drawn from expert sources. We rely heavily on these models and in most cases use them exclusively in making investment decisions. b. We rely heavily on quantitative research models that incorporate the effects of inflation. Inflation forecasts are drawn from expert sources and not revealed to us so that we do not bias the model results. c. We rely heavily on quantitative research models that incorporate the effects of inflation. Inflation forecasts are drawn from expert sources. While I am up to speed on the inputs, I admit I am not an expert in the technical aspects of these models.

b. We rely heavily on quantitative research models that incorporate the effects of inflation. Inflation forecasts are drawn from expert sources and not revealed to us so that we do not bias the model results. This question addresses the use of secondary or third party research. The goal of the standards in this case is to ensure that members who rely on secondary or third-party research make reasonable and diligent efforts to determine whether such research is sound. A is the correct answer in this case - meaning it is not an acceptable - because if the expert sources were not revealed to the covered person there is no way they could perform due diligence on the source to determine if it was legitimate. B is not a violation because one is not expected to be an expert in all of the technical aspects of models. If that was the case, there are very few covered persons who could employ quantitative models to help make investment decisions. C is not a violation because it describes a whole class of quantitative investing. This statement properly discloses to the client that the firm invests virtually exclusively using quantitative research models. The key here and why this question was asked is that a covered person does not need to be considered an expert in the inputs to any models employed. But, the covered person should determine whether such research is sound. Blindly taking inflation forecasts by "experts" who the covered person cannot identify would not be considered an adequate level of due diligence and would not represent a reasonable basis.

Which of the following correctly completes this sentence: The asset manager code of professional conduct is a. designed especially for individual managers b. designed to cover all of a firm's employees c. designed to apply only if an entity does not have to register or comply with applicable securities laws or regulations

b. designed to cover all of a firm's employees The Introduction section of the Asset Manager Code of Professional Conduct states Rather than creating rules that apply only to certain people or groups, this Code is intended to cover all employees of the firm. Thus, response B is accurate. It goes on to say that broadly applying the code helps employees understand ethical issues involved in the asset management business, even if they are not directly managing assets so response A is inaccurate. Response C is inaccurate since not all entities, for example hedge funds, have to register or comply with securities laws and regulations. When these firms enact the Code, and follow it, this helps ensure fair dealing and integrity, and promotes self-regulation.

Referring to the vignette, was Ankany's distribution of the research report only to subscribers of the premium research service in violation of CFA Institute Standards? a. Yes, because Ankany did not distribute it to all of Ankany's clients simultaneously. b. No, because it differentiated which was purchased research and which was developed internally by Ankany c. No, Ankany may distribute its research to only those clients subscribing to such service.

c. No, Ankany may distribute its research to only those clients subscribing to such service. According to the SOPH Standard III(B): "members and candidates may provide more personal, specialized, or in-depth services to clients who are willing to pay for premium services through higher management fees or higher levels of brokerage." It doesn't matter in this case whether it was purchased research or developed internally.

Director independence is most often defined and determined by which Board committee? a. Governance b. Compensation c. Nomination d. Risk

c. Nomination The nominating committee is the one most concerned with determining whether or not a director candidate would be considered to be independent. They would be on the forefront of making the determination since they are the group identifying potential directors.

Juan Mendez, CFA, is an investment advisor who operates as a sole proprietor and has five clients. According to the CFA Standards of Professional Conduct, if Mendez seeks additional employment with a brokerage firm and is later hired he: a. does not need to advise his old clients in writing of his employment with the brokerage firm or get written consent from his new employer to keep his old clients b. must get written consent from his new employer to keep his old clients and must advise his old clients in writing of his employment with the brokerage firm c. must get written consent from his new employer to keep his old clients but does not need to advise his old clients in writing of his employment with the brokerage firm d. must advise his old clients in writing of his employment with the brokerage firm but does not need to get written consent from his new employer to keep his old clients

b. must get written consent from his new employer to keep his old clients and must advise his old clients in writing of his employment with the brokerage firm Standard IV(B) applies in this case. It says "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." In order to argue he doesn't need to provide notice in writing you would have to argue that the dual advisor relationship could not potentially cause a conflict of interest between old clients, new clients and potentially the employer. I can see numerous ways this might occur. A simple example would be allocating IPO shares in an oversubscribed offering. Who gets priority? Thus, written consent from all parties is required.

Mei Wong, CFA, executes trades for AMC Asset Management. One of their clients requests all trades be directed to Zeus Securities because Zeus Securities will direct a portion of the commissions to the client. Wong notices Zeus's prices are slightly worse than prices other dealers are giving her for the same security. If Wong continues to execute her client's trades with Zeus, she would: a. violate CFA Institute Standard of Professional Conduct on independence and objectivity. b. not be in violation of any Standard. Directed brokerage is allowed with certain stipulations. c. violate CFA Institute Standard of Professional Conduct related to loyalty, prudence, and care

b. not be in violation of any Standard. Directed brokerage is allowed with certain stipulations. Directed brokerage is covered under Standard III: Duties to Clients section (A) Loyalty, prudence and care. As such, item C is eliminated immediately. According to the Code, directed brokerage does not represent a violation of the Code since brokerage is an asset of the client. Further, it appears this relates directly to the client and that there are no beneficiaries involved which would mean the additional assurances from the client noted in the excerpt blow are not necessary. Finally, the last statement in the excerpt below indicates the broker "should" (as opposed to "must") disclose to the client that the client may not be getting the best execution. Remember, though, that execution includes not just price but other concerns as well. Since Zeus directs a portion of the commissions to the client, best execution is still a possibility in spite of the slight price differentials. In any event, it's difficult to argue Mei is in violation of the Code. Here are the excerpts: "From time to time, a client will direct a manager to use the client's brokerage to purchase goods or services for the client, a practice that is commonly called "directed brokerage." Because brokerage commission is an asset of the client and is used to benefit that client, not the manager, such a practice does not violate any duty of loyalty. A member or candidate is obligated to seek "best price" and "best execution," however, and be assured by the client that the goods or services purchased from the brokerage will benefit the account beneficiaries. "Best execution" refers to a trading process that seeks to maximize the value of the client's portfolio within the client's stated investment objectives and constraints. In addition, the member or candidate should disclose to the client that the client may not be getting best execution from the directed brokerage."

A portfolio manager manages a portfolio of penny stocks. In the ordinary course of business the manager's portfolio must make buy and sell decisions on securities that are typically thinly traded. The analyst has not violated the Standard relating to market manipulation if he or she a. maintains a blog on several of the securities in order to accumulate for the investing public all publicly known rumors regarding the securities b. trades in a thinly traded security in amounts large enough to overwhelm the liquidity of the security c. engages in transactions to give the impression of activity in a penny stock in order to facilitate liquidating a position more profitably d. secures a controlling, dominant position in one of the penny stocks to make sure its price does not fall below a level that allows for clients to at least break even

b. trades in a thinly traded security in amounts large enough to overwhelm the liquidity of the security A listing of the rationale for each choice is below: From Standard II(B): "Standard II(B) is not intended to preclude transactions undertaken on legitimate trading strategies based on perceived market inefficiencies. The intent of the action is critical in determining whether it is a violation of the standard." It is not a violation to trade in amounts sufficient to overwhelm the liquidity of the market and influence price. This happens all the time with mutual funds and other asset owners who have large positions and make large transactions. Thus, this is the correct answer. From Standard II(B): One definition of transactions based manipulation is "securing or controlling, dominant position in a financial instrument to exploit and manipulate the price of a related derivative and/or the underlying asset." This is the situation described in choice B. Choice C is describing an act of manipulation and is precluded. One definition of transactions-based manipulation is "transactions that artificially affect prices or volume to give the impression of activity or price movement in a financial instrument, which represent a diversion from the expectations of a fair and efficient market. Choice D describes information-based manipulation. From the Code - "Information-based manipulation includes, but is not limited to, spreading false rumors to induce trading by others." The portfolio manager would be encouraging less sophisticated investors to trade based on these rumors. It would be irresponsible for the portfolio manager to encourage the dissemination of false rumors.

Which of the following is not a correct statement with regards to CFA Standard V(B) Communication with Clients and Prospective Clients? a. It is the responsibility of members and candidates to include in their communications those key factors that are instrumental to the investment recommendation presented b. Developing and maintaining clear, frequent, and thorough communication practices is important to providing high-quality financial services to clients c. A critical part of Developing and maintaining clear, frequent, and thorough communication practices is to clearly present only facts and not opinions

c. A critical part of Developing and maintaining clear, frequent, and thorough communication practices is to clearly present only facts and not opinions C is the correct answer. While a critical part of the communication requirement is "to distinguish clearly between opinions and facts," the member or candidate certainly can communicate opinions. In essence, that is what an investment recommendation is, is an opinion. Choice A is a quote from the SOPH - "...members and candidates should communicate in a recommendation the factors that were instrumental in making an investment recommendation." Choice B is a quote from the SOPH - "Developing and maintaining clear, frequent, and thorough communication practices is critical to providing high-quality financial services to clients."

Which of the following is not a violation of CFA Standard IV(A) Duties to Employers? a. An intern, who worked twenty hours a week for a research firm but was paid nothing in the form of monetary compensation, takes with her software she created while an intern when she leaves the firm b. An asset manager, in leaving his current job to take a similar position at a competitor, takes with him a list of the names and phone numbers of his prospects but nothing related to his existing client base c. An asset manager recruits his colleagues to join in an employee-led buyout of their firm's equity asset management business d. An analyst, in leaving her current job to take a similar position at a competitor, takes computer spreadsheets for her existing firm's major corporate recommendations which she developed when she was an analyst

c. An asset manager recruits his colleagues to join in an employee-led buyout of their firm's equity asset management business The correct answer is C. See Example 3 of Standard IV(A) of the Standards of Practice Handbook. "An employee-led buyout...would be consistent with Standard IV(A) because it would rest on the permission of the employer and, ultimately, the clients." All the other choices are violations of Standard IV(A): Choice A would be a violation because the prospect list would be considered property of the firm. Choice B would be a violation because the computer spreadsheets would be considered property of the firm. Choice D would be a violation because even though the intern doesn't receive monetary compensation for her services, she used firm resources in creating the software and is considered an employee because she receives compensation and benefits in the form of work experience and knowledge. See Example 5 of section IV(A) of the Standards of Practice Handbook

Standard VI(C) covers the responsibility of members and candidates to inform their employer, clients, and prospective clients of any benefit received for referrals of customers and clients. Which of the following is not accurate as it relates to this Standard? a. The member or candidate must disclose the nature of any consideration or benefit received or paid along with the estimated dollar value b. Members and candidates must disclose when they pay a fee or provide compensation to others who have referred prospective clients to the member or candidate. c. Appropriate disclosure means that members and candidates must advise the client or prospective client, after 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 d. Consideration includes all fees, whether paid in cash, in soft dollars, or in kind

c. Appropriate disclosure means that members and candidates must advise the client or prospective client, after 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 This question asks for which of the following is NOT accurate. B is not accurate, as the SOPH Standard VI(C) states that "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." Statements A, C and D are taken directly from the Standards.

Betty Roberts is speculating in penny stocks for her own account and purchases 100,000 shares of Drew Mining, Inc., for 30 cents a share. She intends to sell these shares at the sign of any substantial upward price movement of the stock. A week later, her employer asks her to write a report on penny stocks in the mining industry to be published in two weeks. Even without owning the Drew stock, Roberts would recommend it in her report as a "buy." A surge of the price of the stock to the $2 range is likely to result once the report is issued. a. Betty must disclose her ownership position to her employer before writing the report but need not disclose it in the published report b. Betty must disclose her ownership position in her report and notify her employer by submitting her finalized report to the compliance department c. Betty must disclose her ownership position to her employer before writing the report and in the published report itself d. Betty need not make any disclosures to her employer if the stock position is considered to not be material according to the company's policies but she must make a disclosure in the report itself

c. Betty must disclose her ownership position to her employer before writing the report and in the published report itself This is example 4 in Standard VI(A) verbatim. If you missed this question, this may indicate that you need to study the examples contained in the SOPH more closely.

James Jones, CFA, is very proud of his son, Earl who works with him at Jones and Sons Investment Management. He has just learned that Earl has passed the Level III CFA examination. Earl has yet to accrue the requisite number of years of work experience to be awarded the charter. Jones sends an email to all the clients of Jones and Sons to congratulate Earl on his accomplishment. The email makes the following statements: Statement One: I was not able to pass each of the exams on the first try, so Earl is a lot smarter and will be a better portfolio manager than me. Statement Two: The local CFA Society recognizes new Charterholders at its November 15th meeting. We are going to publicly announce and then celebrate Earl being awarded the charter that same night. Which of the statements by James Jones is in violation of Standard VII with respect to conduct as members and candidates in the CFA Program? a. Statement One only b. Statement Two only c. Both Statement One and Statement Two d. Neither Statement One or Statement Two

c. Both Statement One and Statement Two Claiming that someone is smarter and will be a better portfolio manager because they passed the exams on consecutive years implies superior ability and is a violation of Standard VII(B). Stating that they are going to have a big celebration when Earl receives his charter is not a violation, but by saying he will get it on November 15 is a violation. "Final award of the charter is subject to meeting the CFA Program requirements and approval by the CFA Institute Board of Governors."

Referring to the vignette, is Ankany's use of third-party research and Mr. Thomas's citation consistent with the CFA Institute Standards? a. The use of third-party research is not consistent. The citation is consistent. b. The use of third-party research is consistent. The citation is not consistent. c. Both the use of third-party research and the citation are consistent.

c. Both the use of third-party research and the citation are consistent.

Harjeet is a CFA charterholder who manages money for wealthy clients. Harjeet's success comes entirely from his ability to sift through the research produced by others and to make recommendations based on his findings. Harjeet has solicited testimonials from clients, ultimately using the following quote, with proper consent and citation, from a client: "Harjeet provides me with the research I need to be a successful investor. In my opinion, his analytical abilities are second to none." Harjeet uses this quote to advertise his skills as a research analyst to potential clients as follows: "My track record as a research analyst demonstrates I give my clients the knowledge they need to invest successfully." Is Harjeet in violation of the Code and Standards? a. He may be in violation with his current clients even if he discloses the source of the third-party research because the Standards require that he perform at least some of the research himself. b. He is not in violation since his value-added comes from his ability to screen the third-party research and he always discloses the source of the research to his clients. c. He may be in violation because his failure to disclose to potential clients that he relies on third-party research might lead them to misunderstand the extent of his expertise.

c. He may be in violation because his failure to disclose to potential clients that he relies on third-party research might lead them to misunderstand the extent of his expertise. Choice B can be eliminated. Nowhere do the Standards require that a covered person perform at least some of the research himself. Choice C is the correct answer. By him saying that he gives clients the knowledge they need to invest successfully, he is implying that his clients invest successfully. It also implies that he has a strong track record. How does he demonstrate this? Choice A is not correct because it indicates that he is not in violation of the Standards. Even if his value add comes from his ability to screen the third party research and he discloses the source of the research to his clients, it does not mean that his quote is not in violation of the Code and Standards.

Tom Darnold, CFA just joined a local asset management firm. He is reviewing the firm's policies to make sure they are consistent with the CFA Asset Manager Code. Which of the following policies should Tom suggest his firm change in order to conform to this Code? a. Managers must exhibit the care and prudence necessary to meet their obligations to clients. Prudence requires caution and discretion. b. The exercise of prudence requires acting with the care, skill, and diligence that a person acting in a like capacity and familiar with such matters would use under the same circumstances. c. In the context of managing a client's portfolio, prudence requires following the investment parameters set forth by the manager and balancing risk and return. d. Acting with care requires Managers to act in a prudent and judicious manner in avoiding harm to clients.

c. In the context of managing a client's portfolio, prudence requires following the investment parameters set forth by the manager and balancing risk and return. Responses A, B and D come directly from the Recommendations and Guidance dealing with Investment Process and Action, or section B.1. The heading for this section is Use reasonable care and prudent judgment when managing client assets. Thus, responses A, B and D are accurate. Response C is inaccurate because the investment parameters should be set by the client, not the manager.

Which of the following is LEAST correct with respect to Standard V(A) Diligence and Reasonable Basis when a member or candidate relies on others within his or her firm to determine whether secondary or third-party research is sound and the information can be used in good faith? a. It can be used unless the member or candidate has reason to question its validity b. It can be used unless the member or candidate has reason to question the processes and procedures used by those responsible for the investigation c. It can be used in situations where the portfolio manager does not have a choice over a data source due to budget constraints

c. It can be used in situations where the portfolio manager does not have a choice over a data source due to budget constraints

Joe has been an investment advisor for years. In part because of his reputation Joe is offered a Board of Directors position in a firm he has covered and recommended for several years. Joe believes his Board position will help him make better investment recommendations to his clients. Which of the following is a correct statement of a conflict of interest Joe might face under the Code and Standards? a. A conflict may exist between the duties owed to shareholders of the company and to Joe's employer but not to Joe's clients b. A conflict may exist if Joe receives monetary compensation or securities for serving on the board but won't exist if he merely receives option to purchase securities of the company c. Joe will likely receive material non-public information involving the company putting him in a position of conflict between his clients and the firm's shareholders

c. Joe will likely receive material non-public information involving the company putting him in a position of conflict between his clients and the firm's shareholders

All of the following are accurate according to the Code and Standards except: a. Disclosures made to a room full of analysts does not necessarily make the discovered information public b. The less reliable a source the less likely the information provided would be considered material c. Materiality is determined based on the information and not based on the level of ambiguity its effect would have on price d. Information is nonpublic until is has been disseminated or is available to the marketplace in general

c. Materiality is determined based on the information and not based on the level of ambiguity its effect would have on price "The less reliable a source, the less likely the information would be considered material." This covers choice B. "Information is considered nonpublic until it has been disseminated to the marketplace in general (as opposed to a select group of investors)." This covers choice C. "Information that is made available to analysts remains nonpublic until it is made available to investors in general." This covers choice D. The correct answer is A. The determination of materiality is determined based upon the likely impact on price of its disclosure. From the Code: "Information is material if its disclosure would probably have an impact on the price of a security."

Which statement is not entirely accurate? a. A member's employer's interests are secondary to protecting the integrity of capital markets b. Once notice has been provided to the employer of intent to resign, the member must follow the employer's policies and procedures related to notifying clients of his or her planned departure c. Members must not render services to outside clients until they have notified their employer of all of the terms of the arrangement

c. Members must not render services to outside clients until they have notified their employer of all of the terms of the arrangement Item C is not accurate. Members must receive consent from their employer, and should not just notify them.

Samantha Snead, a portfolio manager for James Investment Counsel, Inc., specializes in managing public retirement funds and defined-benefit pension plan accounts, all of which have very conservative and long-term investment objectives. A year ago, Snead's employer, in an attempt to motivate and retain key investment professionals, introduced a bonus compensation system that rewards portfolio managers on the basis of quarterly performance relative to their peers and to certain benchmark indices. In an attempt to improve the short-term performance of her accounts, Snead changes her investment strategy by adding investments with higher risk to the portfolios in order to enhance returns and, therefore, her compensation. The firm prohibits its employees from divulging specific compensation arrangements. Snead does not notify her clients of the changes in compensation or investment strategy. Which of the following is most accurate? a. Snead is in compliance with the Code as it relates to disclosure of conflicts and her compensation arrangement since she is prohibited by the firm from doing so b. Snead is in compliance with the Code as it relates to disclosure of conflicts and her compensation arrangement since she is prohibited by the firm from doing so but may have violated the Code and Standards as it relates to suitability c. Snead may have violated the Code as it relates to disclosure of conflicts and as it relates to suitability

c. Snead may have violated the Code as it relates to disclosure of conflicts and as it relates to suitability In terms of failing to notify her clients of the changes in compensation, this really violates two standards - Standard III: Duties to Clients (A) Loyalty, Prudence and Care as well as Standard VI: Disclosure of Conflicts. Standard III(A) of the SOPH states "members and candidates should make their clients aware of all forms of manager compensation." The change in compensation is definitely a material change. Standard VI(A) requires that members and candidates 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." It states in the body of the SOPH that "common sources for conflict are compensation structures, especially incentive and bonus structures that provide immediate returns for members and candidates with little or no consideration of long-term value creation." The fact that the firm prohibits its employees from divulging specific compensation arrangements does not supersede the requirement to abide by these standards. By adding investments with higher risk to the portfolios which have very conservative and long-term investment objectives portfolios in order to enhance returns, Snead had violated Standard III: Duties to Clients (C) Suitability. Candidates and members must "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." The investments simply aren't suitable for the clients.

Which of the following is NOT entirely accurate as it relates to Standard V(C) Record Retention? a. If local regulators impose requirements on members, candidates, and their firms related to record retention they must be followed b. Fulfilling regulatory and firm requirements satisfies the requirements of Standard V(C) c. The provisions regarding record retention in this section apply to dealings with clients but not with prospective clients

c. The provisions regarding record retention in this section apply to dealings with clients but not with prospective clients C is the correct answer. The standard itself refers to prospective clients - "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." Answers A and B are clearly consistent with the Code - "Local regulators often impose requirements on members, candidates, and their firms related to record retention that must be followed. Firms may also implement policies detailing the applicable time frame for retaining research and client communication records. Fulfilling such regulatory and firm requirements satisfies the requirements of Standard V(C)."

Referring to the vignette, did Ankany's purchase of the ADRs on behalf of the University endowment violate CFA Institute Standards? a. No, Ankany has an obligation to offer its best investments to all clients. b. Yes, because Ankany also purchased the ADRs on behalf of the firm. c. Yes, because Ankany likely departed from the investment policy of the University endowment fund.

c. Yes, because Ankany likely departed from the investment policy of the University endowment fund. C is correct because Standard III(C) Suitability requires that covered persons "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 action." The University's endowment trust fund has an investment policy statement to invest only in short-term, US dollar denominated, near cash securities - therefore, investing in the ADRs of the subsidiary of MFA Industries would violate the investment policy statement of the University endowment. A is incorrect because not every investment opportunity will be suitable for every portfolio, regardless of the potential return being offered. B is incorrect because there is no prohibition against investing in the same securities for the firm as for clients. Ankany managed the purchase correctly, as the investments were made only after client transactions had been completed.

According to the Code and Standards Duties to Employers: Responsibility of Supervisors, adequate compliance procedures should include all but which of the following? a. designate a compliance officer whose authority and responsibility are clearly defined b. describe the hierarchy of supervision and assign duties among supervisors c. encourage supervisors to implement a system of checks and balances d. outline procedures to document the monitoring and testing of compliance procedures

c. encourage supervisors to implement a system of checks and balances The Code says that adequate compliance procedures should implement a system of checks and balances. It does not say that adequate compliance procedures should encourage supervisors to implement a system of checks and balances. In other words, encouragement is not part of the language. The firm should implement a system of checks and balances. From the list of adequate compliance procedures for Standard IV(C) of the Code: Answer A is bullet point 3 Answer B is bullet point 4 Answer D is bullet point 7

Which of the following completes this sentence in a manner so that it creates the best example of a recommended stance firms should take regarding gifts from clients or potential clients according to the Code and Standards: Members of this firm must not accept gifts that could be expected to compromise their own or another's independence and objectivity. Keeping this in mind, you can accept You Answered a. gifts from a client or potential client so long as they are reported to management either before or after the fact b. any gift that does not exceed $500 in value. c. gifts that are considered ordinary business-related entertainment

c. gifts that are considered ordinary business-related entertainment The most correct answer to the question is A. B is incorrect because it does not include the phrase "...ordinary business-related entertainment." B leaves too much room for acceptance of gifts without putting restrictions of any kind on size or amount.

Which of the following statements regarding the Code and Standards as it relates to Misrepresentation MAY, in some circumstances, not be considered to be a violation? A member... a. makes a factual statement but intentionally omits a relevant fact b. makes misstatements regarding the firm's historical record by excluding performance for portfolio managers who have left the firm c. makes misstatements thru ignorance of some of the facts d. makes misstatements that do not represent the his/her qualifications accurately

c. makes misstatements thru ignorance of some of the facts The key here is "a member or candidate must not knowingly omit or misrepresent information." The Code further states that "knowingly means that the member or candidate either knows or should have known that misrepresentation was being made or that omitted information could alter the investment decision-making process." Some selected choice D. Choices B, C, and D were "knowingly" done

A Member reads an article in their local newspaper. The article is identified as coming from the Associated Press. The Member wants to cite the article in her daily blog. According to best practices the Member a. should cite only the AP as a source for the information b. should cite only the local paper as a source for the information c. should cite both the local paper and the AP as sources for the information

c. should cite both the local paper and the AP as sources for the information

Which of the following is not considered a candidate in the CFA Program? the person is enrolled (by the CFA Institute) to sit for a specified examination the person has sat for a specified examination but exam results have not yet been received Correct! the person just received confirmation they passed the Level II CFA exam and plans to register for the Level III CFA exam when it becomes possible to do so four weeks from now

c. the person just received confirmation they passed the Level II CFA exam and plans to register for the Level III CFA exam when it becomes possible to do so four weeks from now From Standard VII(B) of the SOPH, "If an individual is registered for the CFA Program but declines to sit for an exam or otherwise does not meet the definition as described in the CFA Institute Bylaws, then that individual is no longer considered an active candidate. Once the person is enrolled to sit for a future examination, his or her candidacy resumes."

Which stakeholder group tends to be least concerned with or affected by the company's financial performance? a. Creditors b. Managers c. Suppliers d. Customers

d. Customers Creditors, managers and suppliers are all stakeholders who can suffer loss if the firm does poorly. You might argue that customers are concerned for warranty, returns or ongoing service but they are the group of those listed that is least likely to be concerned about the firm's financial health over extended periods of time.

Which of the following investment policies suggested in the Code and Standards may be ignored if the action is not consistent with plan guidelines or is contrary to the account objectives? a. Follow all applicable rules and laws b. Establish the investment objectives of the client c. Seek best execution. d. Diversify

d. Diversify All items noted are contained in the Code and Standards. Of these, only item C carries that notation that it may be ignored if not consistent with plan guidelines. According to III(A) in the SOPH - "Members and candidates should diversify investments to reduce the risk of loss, unless diversification is not consistent with the plan guidelines or is contrary to account objectives."

All of the following are accurate according to the Code and Standards except: a. Disclosures made to a room full of analysts does not necessarily make the discovered information public b. The less reliable a source the less likely the information provided would be considered material c. Information is nonpublic until it has been disseminated or is available to the marketplace in general d. Materiality is determined based on the information and not based on the level of ambiguity its effect would have on price

d. Materiality is determined based on the information and not based on the level of ambiguity its effect would have on price According to the Code, Item A is not correct. Ambiguity does impact the decision whether something is considered material or not. Items B, C and D are almost direct quotes from the Standards. Here are the relevant passages from Standard II(A): "What Is "Material" Information? Information is "material" if its disclosure would probably have an impact on the price of a security or if reasonable investors would want to know the information before making an investment decision. In other words, information is material if it would significantly alter the total mix of information currently available about a security in such a way that the price of the security would be affected."

Which of the following is not a correct statement from the Code and Standards Standard dealing with duties to clients? a. 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 b. In relationships with clients, Members and Candidates must determine applicable fiduciary duty and must comply with such duty to persons and interests to whom it is owed c. Members and Candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment d. Members and Candidates must act for the benefit of their clients and place their clients' interests first unless it conflicts with their employer's interests

d. Members and Candidates must act for the benefit of their clients and place their clients' interests first unless it conflicts with their employer's interests From Standard III:A - "Members and Candidates must act for the benefit of their clients and place their clients' interests before their employer's or their own interests." The Standard emphasizes that client's interests are before employer's interests.

Supervisors should establish reporting procedures for investment personnel, including duplicate confirmations, disclosure of personal holdings/beneficial ownerships, and preclearance procedures. Once trading restrictions are in place, they must be enforced. The best method for monitoring and enforcing procedures established to eliminate conflicts of interest relating to personal trading is through reporting requirements, including each of the following except: a. Disclosure by investment personnel to the firm should be made upon commencement of the employment relationship and at least annually thereafter b. Investment personnel should be required to direct their brokers to supply duplicate copies or confirmations to their firms of all their personal securities transactions and copies of periodic statements for all securities accounts. c. Investment personnel should clear all personal investments to identify possible conflicts prior to the execution of personal trades d. Personal investment positions taken by a firm's investment personnel should be disclosed publicly, specifying the owner and the position so that the firm's clients can adequately judge any potential conflicts that may exist

d. Personal investment positions taken by a firm's investment personnel should be disclosed publicly, specifying the owner and the position so that the firm's clients can adequately judge any potential conflicts that may exist Reporting requirements for priority of transactions are provided near the end of Standard VI(B) and before the examples in the Standards of Practice Handbook. The answers A through C correspond to the three bullet reports under reporting requirements. There is no requirement that personal investment positions taken by a firm's investment personnel be disclosed publicly, specifying the owner and the position so that the firm's clients can adequate judge any potential conflicts that may exist.

A local CFA review provider brings successful Candidates from each of the previous year's exams in to help students prepare for their respective coming year's exam. Here are some of the statements made by the former Candidates. Which answer choice represents an accurate assessment of these statements as it relates to the Code and Standards? I. Last year the CFA Level II exam did not test Put-Call parity. II. Last year the CFA Level I exam put a great deal of focus on arbitrage strategies in the derivatives area III. The morning portion of last year's CFA Level III exam from the CFA Institute's website shows a detailed question relating to an institutional IPS a. All three statements represent a violation of the Code and Standards b. Statement I is not a violation of the Code and Standards because, while discussing specific questions is prohibited, discussing areas not covered is not c. Statement II is not a violation of the Code and Standards because it discusses a general topic but not a specific question d. Statement III is not a violation of the Code and Standards because the exam was made public by the CFA Institute

d. Statement III is not a violation of the Code and Standards because the exam was made public by the CFA Institute The relevant passages from section VII(A) are below. Item I is a violation because it relates to a broad topical area that was not on the exam. Item II represents a violation because it relates to specific questions or a broad topical area tested on the exam. Both are included in the first passage below. Item III is not a violation since the candidate references an exam made public by the CFA Institute. "Confidential Program Information. CFA Institute is vigilant about protecting the integrity of the CFA Program content and examination process. The CFA Program prohibits candidates from disclosing confidential material gained during the exam process. Examples of information that cannot be disclosed by candidates sitting for an exam include but are not limited to specific details of questions appearing on the exam, and broad topical areas and formulas tested or not tested on the exam." "All aspects of the exam, including questions, broad topical areas, and formulas, tested or not tested, are considered confidential until such time as CFA Institute elects to release them publicly. This confidentiality requirement allows CFA Institute to maintain the integrity and rigor of the exam for future candidates. Standard VII(A) does not prohibit candidates from discussing nonconfidential information or curriculum material with others or in study groups in preparation for the exam."

Joe is a CFA candidate. He is concerned about the Standard dealing with conflicts of interest. Joe has asked his colleagues at the investment firm at which he works. They have responded with the following statements. Which is not correct? a. It is up to members and candidates to determine how often and in what manner disclosure of conflicts must be made b. Members and candidates should err on the side of caution or repetition to ensure that conflicts of interest are effectively communicated c. It is up to members and candidates to determine under what particular circumstances disclosure of conflicts must be made d. Supervisors, not the members and candidates, have the responsibility to assess when and how members and candidates meet their obligations under this standard in each particular case

d. Supervisors, not the members and candidates, have the responsibility to assess when and how members and candidates meet their obligations under this standard in each particular case Items A, B and C are directly from the Standards. I've quoted the appropriate section from Standard VI(A) here: "To be effective, disclosures must be prominent and must be made in plain language and in a manner designed to effectively communicate the information. Members and candidates have the responsibility of determining how often, in what manner, and in what particular circumstances the disclosure of conflicts must be made. Best practices dictate updating disclosures when the nature of a conflict of interest changes materially—for example, if the nature of a conflict of interest deepens through the introduction of bonuses based on each quarter's profits as opposed to the previous review based on annual profits. In making and updating disclosures of conflicts of interest, members and candidates should err on the side of caution to ensure that conflicts are effectively communicated."

Members and candidates need to ensure that their firms have standardized criteria for reviewing external advisers. Which of the following is a statement that LEAST indicates compliance with the Code and Standards recommended criteria? a. We have verified the existence of and reviewed each adviser's code of ethics b. We have verified each adviser has established compliance and internal control procedures c. We have assessed the quality of each advisor's published return information d. We have determined the adviser's stated investment strategy is in line with our own

d. We have determined the adviser's stated investment strategy is in line with our own Here, items A, B and C are almost direct quotes from the SOPH Standard V(A). Item D, while close, is not entirely accurate and is, therefore, represents the LEAST compliance. Here are the relevant passages: "Selecting External Advisers and Subadvisers. Financial instruments and asset allocation techniques continue to develop and evolve. This progression has led to the use of specialized managers to invest in specific asset classes or diversification strategies that complement a firm's in-house expertise. Standard V(A) applies to the level of review necessary in selecting an external adviser or subadviser to manage a specifically mandated allocation. Members and candidates must review managers as diligently as they review individual funds and securities. Members and candidates who are directly involved with the use of external advisers need to ensure that their firms have standardized criteria for reviewing these selected external advisers and managers. Such criteria would include, but would not be limited to, the following: reviewing the adviser's established code of ethics, understanding the adviser's compliance and internal control procedures, assessing the quality of the published return information, and reviewing the adviser's investment process and adherence to its stated strategy."

Jan Leslie, CFA, is an analyst covering the auto parts industry. She recently read in a little known trade magazine that the key product of a manufacturer she covers may not be as reliable as previously thought. Following the story's publication, Jan noticed no increase in trading volume in the shares of the manufacturer. That weekend, Jan spoke with a number of area auto repair professionals where she learned that while a large number of the product was being installed, many of them were not working properly. Jan concluded the product was ultimately not going to be much of a success and issued a "Sell" on the firm's shares the following Monday. By doing this, Jan: a. violated the CFA Institute Standard of Professional Conduct by relying on information from local area auto repair professionals b. violated the CFA Institute Standard of Professional Conduct because the trade magazine is little known and therefore would not be considered "public" c. violated the CFA Institute Standard of Professional Conduct related to material nonpublic information because she noted the lack of change in trading volume after the story's release d. did not violate the CFA Institute Standard of Professional Conduct related to material nonpublic information

d. did not violate the CFA Institute Standard of Professional Conduct related to material nonpublic information This is a classic example of the application of the mosaic theory. From section II(A) of the Code: "Analysts are in the business of formulating opinions and insights that are not obvious to the general investing public about the attractiveness of particular securities. In the course of their work, analysts actively seek out corporate information not generally known to the market for the express purpose of analyzing that information, forming an opinion on its significance, and informing their clients, who can be expected to trade on the basis of the recommendation...Accordingly, violations of Standard II(A) will not result when a perceptive analyst reaches a conclusion about a corporate action or event through an analysis of public information and items of nonmaterial nonpublic information." The trade magazine, while little known, would contain publicly available information. Doing field research - talking to area auto repair professionals - is applying nonmaterial non-public information. Therefore, no violation of the Standards of Professional Conduct. See Example 6 for a similar example.

An investment advisor and portfolio manager who performs his own research is considered a CFA Member. When making disclosures to clients the Member must a. disclose the basic format and but not the specific principles of the investment processes used to analyze investments b. annually disclose changes that might materially affect the investment processes used to analyze investments when visiting with a client to update their IPS c. rely on clients to determine which factors are important to their investment analyses and should, therefore, be communicated to clients and prospective clients d. distinguish between fact and opinion in the presentation of investment analyses

d. distinguish between fact and opinion in the presentation of investment analyses The correct answer (D) is contained in the listing of Standard V (B) - Investment Analysis, Recommendations, and Actions: Communication with Clients and Prospective Clients. "Members and candidates must distinguish between fact and opinion in the presentation of investment analyses and recommendations." Answer (A) is incorrect, as the "Member and candidates must disclose to clients and prospective clients the basic format AND general principles of the investment processes they use to analyze investments..." Answer (B) is incorrect as the standard says that "Members and Candidates must...promptly disclose any changes that might materially affect those processes." The disclosure is not annually, it is promptly. Answer (C) is incorrect as the MEMBER AND CANDIDATE must 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."

Joel Johns manages money for high wealth individuals via discretionary accounts. His list of clients includes his brother and a cousin. Joel's firm does not have a policy for allocating block trades except that they must be distributed in round lots. Joel frequently has access to "hot" IPOs that are more often than not oversubscribed. Joel never allocates any of such shares to himself and prioritizes his clients as (1) nonrelatives first; (2) cousin second, and (3) brother last. With regard to the CFA Standard on treatment of clients Joel a. has violated the standard as it relates to his treatment of his brother only b. is in compliance c. has violated the standard as it relates to his treatment of his cousin only d. has violated the standard as it relates to his treatment of his brother and cousin

d. has violated the standard as it relates to his treatment of his brother and cousin

Which of the most correctly finishes this phrase: When dealing with clients, a. members and candidates must put their obligation to clients first in all dealings except when a conflict exists with the employer's interests b. conflicts arise in soft dollar arrangements when an investment manager uses client brokerage to purchase research services that are beneficial primarily to the client but also benefit the firm c. brokerage commission is an asset of the client only in very specific and limited cases d. members and candidates must follow any guidelines set out by their clients for management of their assets

d. members and candidates must follow any guidelines set out by their clients for management of their assets Item D is a direct quote from the Code. The others are not entirely correct as noted below: ITEM A: According to the statement of Standard III(A), Soft Commission Policies: "Because brokerage commission is an asset of the client and is used to benefit that client, not the manager, such a practice does not violate any duty of loyalty." Note that there is no distinction about specific and limited cases. Thus item A is a misstatement. ITEM B: According to the statement of Standard III(A), Soft Commission Policies: "Because brokerage commission is an asset of the client and is used to benefit that client, not the manager, such a practice does not violate any duty of loyalty." Brokerage belongs to the client from which it derives. So long as it has value to the client and is used for the client there's no restriction on using it more generally for firm purposes. ITEM C: According to the statement of Standard III(A) Loyalty Prudence and Care "Members and Candidates must act for the benefit of their clients and place their clients' interests before their employer's or their own interests." This statement makes it clear that client interests take precedence over those of the employer. Thus item C is incorrect. ITEM D: According to Standard III(A), Identifying the Actual Investment Client: "Members and candidates must follow any guidelines set by their clients for the management of their assets." Thus item D is the correct response.

THE CODE OF ETHICS, MEMBERS MUST

• Act with integrity, competence, diligence, 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 judg- ment 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.