CFA Level 1: Ethics (textbook)

Duties to Clients

) Loyalty, Prudence, and Care - Member/Cands have duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment. Must act for benefit of their clients and place clients' interests above their own or their employers'. B) Fair Dealing - Members/Cands must deal fairly and objectively with all clients when engaged in professional activities. C) Suitability - When members/Cands are in an advisory relationship with clients, they must: • Must make reasonable inquiry into client's or prospective client's investment experience, financial constraints, etc. before making investment suggestion or taking investment action and must reassess this info regularly. • Determine that an investment is suitable with client's financial situation and consistent with client's written objectives before making an investment recommendation or taking investment action. • Judge the suitability of investments in the context of the client's total portfolio. - when members/Cands are responsible for managing a portfolio to a specific strategy, they must only make investment recommendations/take investment actions that are consistent with the stated objectives and constraints of the portfolio. D) Performance Presentation - when communicating investment performance info, members/Cands must make reasonable efforts to ensure it's fair, accurate, and complete. E) Preservation of Confidentiality - members/Cands must keep info about current/former/prospective clients confidential unless: • Info concerns illegal activities on the part of client/prospective client • Disclosure is required by law • Client or prospective client permits disclosure of info

How often must disclosure of conflicts be made?

- M/Cs have responsibility of determining that. - best practice is updating disclosures when the nature of a conflict of interest changes materially.

When is it wrong for a M/C to attempt to have CFA enforcement of Codes/Stan?

- to settle personal/political disputes.

What is a way to violate standard III(D) when claiming compliance with GIPS standards?

- you must have composites be asset weighted.

Different aim of Code/Standards?

- Code: set of principles that define he overarching conduct CFA Institute expects from its members and CFA Program candidates. - Standards: outline professional conduct that constitutes fair and ethical business practices.

7 Standards of professional conduct

professionalism integrity of capital markets duties to clients duties to employers investment analysis, recommendations, and actions conflicts of interest responsibilities as CFA Institute Mem/Cand

What statement should a party (nonmember or firm) make when claiming compliance with Codes and Standards after they ensures its code of ethics meet the principles of the Code/Standards?

- "Party X claims compliance with the CFA Institute Code of Ethics and Standards of Professional Conduct. This claim has not been verified by the CFA Institute."

Who benefits from GIPS Compliance?

- 1) Investment Management Firms: by complying with standards, investment management firms assure prospective clients and the historical track record is fair and accurate. Compliance allows form to participate in competitive bidding with other firms around the world. Maintain compliance can also strengthen the firm's internal controls over performance-related processes and procedures. - 2) Investors: have more confidence in integrity of GIPS firm and can more easily compare performance presentations.

Why is it important for M/Cs to tell everyone about all fees?

- 1) can evaluate any partiality show in recommendations - 2) can evaluate full cost of services.

Requirements for it to be okay for a M/C to make money from personal investments?

- 1) client is not disadvantaged by trade - 2) the investment professional does not benefit personally from trades undertaken for clients - 3) investment professional complies with applicable regulatory requirements.

What does market manipulation include?

- 1) dissemination of false or misleading information - 2) tranactions that deceive or would be likely to mislead market participants by distorting the price-setting mechanisms of financial instruments.

When does Standard III(E) become applicable?

- 1) the M/C received information because of their special ability to conduct a portion of the client's business or personal affairs, and 2) the M/C receives information that arises from or is relevant to that portion of the client's business that is the subject of the special or confidential relationship.

What is cherry picking funds to be included in a composite a violation of?

- 1C (misrepresentation)

Being arrested outside of work

- 1D is not meant to cover legal transgressions resulting from acts of civil disobedience in support of personal beliefs because this does not reflect poorly on M/C's professional representation/competence.

Key concept of GIPS

- Composites: an aggregation of one or more portfolios managed according to a similar investment mandate, objective, or strategy. It must include all actual, fee-paying, discretionary portfolios managed that way (including historically managed portfolios).

What if a discrepancy between languages in GIPS arises?

- English if official governing version.

9 GIPS sections

- Fundamentals of Compliance, Input Data, Calculation Methodology, Composite Construction, Disclosure, Presentation and Reporting, Real Estate, private equity, Wrap Fee/Separately Managed Account (SMA) Portfolios

Key features of GIPS Standards

- GIPS Standards rely on integrity of input data. GIPS Standards require firms to adhere to certain calculation methodologies and to make specific disclosures along with the firm's performance. - historically, GIPS standards focused primarily on returns. Now to get a more comprehensive view a firm's performance, the 2010 edition includes new provisions related to risk.

Social media and Non public info

- M/C in social media platforms that require membership need to ensure that material info gained through that is also available from a source that is accessible by general public.

What is a client wants to do a trade that goes against their portfolio's written objectives?

- M/C should refrain from making trade until they discuss concerns with client. - if the trade is small and not material, the M/C should focus on educating the investor on how the request deviates from the current policy statement. Following that, the member or candidate may follow his or her firm's policies regarding the necessary client approval for executing unsuitable trades. - at a minimum, client should acknowledge the discussion and accept conditions that make the recommendation unsuitable. - should the trade be expected to have a material impact on the portfolio, the M/C should use this opportunity to update the investment policy statement. - if client declines to have this changed, some firms may have option to have trade executed in a new, unmanaged account, while if alternative options are not available, M/Cs need to determine whether to continue relationship.

Proxies and duty of loyalty, prudence, care

- M/C's duty of loyalty includes voting proxies in an informed and responsible manner. - proxies have economic value to a client and M/Cs must ensure they properly safeguard and maximize this value. - 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.

What about disclosing personal investment in large mutual funds?

- Standard IV(A) would not require that personal or retirement investments in large diversified mutual funds, unless specifically required by her employer. - Standard also does NOT require M/Cs to gain pre clearance for ongoing payroll deduction contributions to retirement plan account investment options, - specific company could still restrict this kind of stuff.

Who in the firm should examine if discussion over firewall is necessary/what should be shared/ what is material?

- a single supervisor/compliance officer (who then oversees firewall communication) that is not involved in the area they are supervising.

fiduciary and Standard III(A)

- although fiduciary duty often encompasses the principle of loyalty, prudence and care, Standard III(A) does not render all M/Cs fiduciaries. - duty may rise to a fiduciary duty but that depends on role, relationship, etc.

Do M/Cs place interest of clients or employers first?

- always clients but they should consider the effects of their conduct on the sustainability and integrity of the employer firm. - employees can therefore contradict employer instructions but only if intent is clearly aimed at protecting clients or integrity of market, not personal gain.

Who can claim compliance with GIPS?

- any investment management firm may choose to comply with GPIS Standards (voluntary) while only investment management firms that actually manage assets can claim compliance with the Standards. Plan sponsors/consultants who do not actually manage money can claim to endorse Standards/require their investment managers to comply with them. - software and their vendors cannot be complaint either. - compliance is a firm-wide process that cannot be achieved on single product or composite.

Hoe do CFA designations have to be written/said?

- as adjectives, never as common names or nouns. - Jane Smith, CFA Not Jane Smith, C.F.A. - "I passed level of the CFA Exam" not "CFA, Level II" - CFA designation cannot be used as part of the firm name and must not be more pronounced that an individual's name. - cannot attach CFA designation to your fake online name. - can come before or after any degrees earned on a business card, personal choice.

When should an investment policy statement be updated?

- at least annually and also prior to material changes to any specific investment recommendations or decisions on behalf of the client. - passage of time is bound to produce changes that are important with respect to investment objectives.

How often should a M/C with control of client assets submit itemized statements to clients?

- at least quarterly with a report that details transactions, where assets are to be maintained/moved, and should separate the client's assets from other party's assets.

Misrepresentation and third party info + confusing investments

- being part of investment team makes you qualified to be able to spot errors/misrepresentations and Code/Stan stresses importance or protecting firm's reputation as well as integrity of markets. - don't invest peoples' money in investment you don't understand (1C)

How is Standard III(B) covered?

- by two broadly defined categories. - investment recommendations: the criterion in that the M/C's primary responsibility is the preparation of recommendations to be acted on by others, including those in the M/C's org. An investment recommendation is any opinion expressed by a M/C in regard to purchasing, selling, or holding an investment. - investment action: primary function is taking investment actions on the basis of recommendations prepared internally or received from external sources.

Can a CFA Institute insider help others with exams?

- can factually state their involvement with the CFA but cannot infer any special advantages will come to those who do business with them because of it.

How can someone supervise a large number of employees?

- can have subordinates directly supervise them. - still M/Cs at supervisor level must, as a minimum, make reasonable efforts to prevent and detect violations by ensuring the establishment of effective compliance systems.

What type of statements can CFA members say their membership brings about for benefits?

- can highlight/emphasize the commitment of the CFA Institute members/charterholders/Candidates to ethical and professional conduct to mention the thoroughness and rigour of the CFA Program. - can make claims about the relative merits of the CFA Program and Code and Standards as long as those statements are implicitly or explicitly stated as opinion of the speaker. - statements that do not express opinions have to be supported by facts.

What can a M/C's duty of fairness and loyalty to clients never be overridden by?

- client consent to patently unfair allocation procedures.

Recommended steps for M/C to ensure compliance of 'Misconduct' (1D)?

- code of ethics: make clear behaviour that looks bad for firm/industry is not okay. - list of violations: list associated discipline. - employee references: check references of potential employees to see they are good people.

What is best way for M/Cs showing performance history to meeting obligations under Standard III(D)?

- compliance with GIPS standards.

GIPS composite construction

- composite return is asset weighted average of the performance of all portfolios in the composite.

What conflicts of interest arise when someone is a director?

- conflict may exist between duties owed to clients and duties owed to shareholders. - may receive securities/options that could cause questions about trading actions that might increase the value of those securities. - cold receive material nonpublic information as a result of being on the board.

Does confidentiality standard end or continue after relationship is done?

- continue

What was initial edition of GIPS Standards designed to do?

- create a minimum global investment performance standard that would: 1) permit and facilitate acceptance and adoption in developing markets. 2) give the global investment management industry one commonly accepted approach for calculating and presenting performance, and 3) address liquid asset classes (equity, fixed income, cash)

What is first step for M/Cs in fulfilling duty of loyalty to clients?

- determine the identity of the client to whom the duty of loyalty is owed. - ie for a pension plan portfolio, the duty of loyalty is owed to the beneficiaries of the trust/plan.

Extremely important to promoting ethical behaviour among a firm's employees?

- development, maintenance, and demonstration of a strong culture of integrity within the firm by senior management.

What does an M/C do when an IPO is over subscribed?

- distribute proportionately while not going under an established minimum lot size for some securities. - don't take any yourself or for immediate family, but if immediately family have accounts managed similarly to accounts of other clients of the firm, the family-member accounts should NOT be excluded.

what does "undertaking independent practice" mean?

- engaging in competitive business, as opposed to making preparations to begin such practice.

GIPS Historical Performance record

- firm is required to present, at a minimum, 5 years of annual performance that is consistent with GIPS Standards or investment performance since the firm's inception if it has been around less that 5 years. - after firm has presented a minimum of 5 year GIPS compliant performance (or since inception if under 5), the firm must present an additional year of performance each year, building up to a minimum of 10 years of GIPS compliant performance. - firms can link non-GIPS compliant performance to their GIPS compliant performance provided that only GIPS compliant performance is presented for periods after January 1st 2000 and the firm discloses periods of non-compliance. - firms must not link non-GIPS compliant performance for periods beginning on or after January 1 2000 to their GIPS compliant performance. - firms that manage private equity, real estate, and/or wrap fee/separately managed account portfolios must also comply with Sections 6, 7, and 8, respectively, of the Provisions of the GIPS Standards that became effective as of January 1 2006.

Who is Asset Manager Code aimed at?

- firms (Code and Standards aimed at individual investment professionals who are members of CFA Institute or candidates).

GIPS disclosure

- firms not required to make negative assurance disclosures. - one of the essential disclosures for every firm is the claim of compliance. - once a firm meets all GIPS requirements, it must appropriately use the claim of compliance to indicate compliance with he GIPS standards.

How is verification of GIPS done?

- firms self-regulate their claim of compliance. - verification is done with respect to entire firm, not specific composites. Verification does not ensure the accuracy of any specific composite presentations. - verifications tests: 1) whether investment firm has complied with all the composite construction requirements of the GIPS Standards on a firm-wide basis, and 2) whether the firm's policies and procedures are designed to calculate and present performance in compliance with GIPS Standards - VERIFICATION MUST BE PERFORMED BY AN INDEPENDENT THIRD PARTY. FORM CANNOT PERFORM ITS OWN VERIFICATION.

Liquidity and market (pump priming strategy)

- formal liquidity of a market is determined by obligations set on market makers but the actual liquidity of a market is better estimated by the actual trading volume and bid-ask spreads. - attempts to mislead participants about the actual liquidity if the market constitute a violation of Standard II(B). - But, an exchange can engage in a liquidity-pumping strategy if it discloses it and it doesn't aim to harm investors.

Do firms need to compare results with appropriate bench mark?

- if a bench mark is used, yes (misrepresentation) but it is not absolutely required and some complicated investment strategies don't have a good comparable one. Best practice is selecting the most appropriate available benchmark from a universe of available options.

Things firms can do to help with compliance regarding Standard 1A (Laws/Regs)

1) develop/adopt code of ethics. 2) provide info on applicable laws 3) establish procedures for reporting violations

For the purposes of Standard VI(A), when do M/Cs beneficially own securities/other investments?

- if they have a direct or pecuniary interest in the securities, have the power to vote or direct the voting of the shares of the securities or investments, or have the power to dispose or direct the disposition of the security or investment.

When are managers considered to have custody/control of their client's assets?

- if they have any direct or indirect access to client funds. - this entails a higher level of responsibility. - managers must manage any pool of assets in their control in accordance with the terms of the governing documents, which are the primary determinants of the manager's powers and duties.

Plagiarism and secondary sources

- if you get information about a report through CNN and then discuss it, you must cite CNN & report. - But if you see CNN report and then read report for yourself, you just need to cite report, NOT CNN as well as it was merely conduit for information and it didn't add value to the report itself.

History of GIPS?

- in 1995, CFA Institute (formerly Association for Investment Management and Research) ((AIMR)) sponsored Global Investment Performance Standards Committee to develop global standards. - 1998 GIPS standards posted in CFA website and circulated for comment between 4000 interested individuals. - 1999: GIPSC replaced by Investment Performance Council (IPC). - 2005: 2nd edition GIPS published. With this release, IPC decided to move to single global GIPS standards and eliminated local variations of these standards. To facilitate involvement from all countries, CFA Institute dissolved IPC and created the GIPS Executive Committee and the GIPS Council. - GIPS Executive Committee serves as the decision-making authority for GIPS Standards, and the GIPS Council facilitates the involvement of all country sponsors in the ongoing development and promotion of the GIPS Standards.

Should investment decisions be judged in the context of the whole portfolio or individually?

- in the context of the total portfolio. - M/Cs can be responsible for assessing the suitability of an investment only on the basis of the information and criteria actually provided by the client.

What about duty of loyalty, prudence care for a client when they are a law firm and you are an expert witness hired by them and your advice may hurt them?

- in this case, the law firm represents Hensley's employer and the aspect of 'who is the client' is not well defined. - when acting as an expert witness,Hensley is bound by the standard of independence and objectivity in the same manner as an independent research analyst would be bound.

What about violations done by others and inaction by you?

- inaction combined with continuing association those involved in illegal/unethical conduct may be construed as participation or assistance in the illegal or unethical conduct.

When is information nonpublic?

- information is nonpublic until it has been disseminated or is available to the marketplace in general (as opposed to a select group on investors). - disseminated can be defined as 'made known.' - M/Cs must have a reasonable expectation that people have received the information before it can be considered public. - however, don't have to wait for slowest method of delivery. - once the info is disseminated to the market, it is public information that is no longer covered by this standard. - info that is disclosed to a small group of investors is still nonpublic.

Why were the GIPS Standards created?

- investment community had trouble comparing investment performance. Reasons included: representative accounts (selecting top performing portfolio to represent all investments made for a specific mandate), survivorship bias, and varying time periods.

Should an employee with a job outside of work tell that to their employer?

- it can't take away the employee's loyalty and if the duties from that job are very time consuming and may detract from his ability to perform his job, he should discuss that with his employer.

Trouble with restricted list of firms that employees cannot personally trade?

- it inspires employees to trade those firms. - therefore should use a watch list to monitor transactions in specified securities.

What to remember about Standard III(A) Loyalty, prudence, care

- it sets minimum expectations for members and candidates whether a fiduciary duty applies or not when fulfilling their expectations to their clients but these vary across the industry depending on factors such as nature of recommendations being offered and job/function of investment advisor.

Can an investment manager use client brokerage to purchase research services?

- it's a practice commonly called "soft dollars" or "soft commissions." - a member or candidate who pays higher broker commissions than they normally would pay for the purchase of goods and services, without corresponding benefit for the client, violates the duty of loyalty to the client. - from time to time, a client will direct a manger to use the client's brokerage to purchase goods or services for the client ("directed brokerage") and because brokerage commissions is an asset of the client and is used to benefit the client, not the manager, it does not violate duty of loyalty. However, manager is obligated to seek "best price" and "best execution" (a trading process that seeks to maximize the value of the client's portfolio within the client's stated investment objectives and constraints."

Applicable law

- law that governs the Mem/Can conduct.

What is a risk that should always be exposed in recommendations?

- leverage.

How can Mem/Can avoid plagiarism?

- maintain copies: keep copies of all research that was used in making a report. - attribute quotations: - attribute summaries:

What about multiple valuations of illiquid/non-traded securities?

- misrepresentation can occur if it's decided to switch providers just to obtain a higher valuation. Consistency in the reported information will improve the perception of the valuation process for illiquid securities.

Recommended procedures for compliance for members and candidates regarding 1A (Laws and regulations)?

1) stay informed 2) review procedures 3) maintain current files

Gifts allowed for analysts and portfolio managers from outside sources? From clients?

- modest gifts and entertainment are acceptable from outside sources, but special care must be taken so this doesn't interfere with their clients' best interests. - gifts from clients can be distinguished from gifts given by entities looking to influence as there is already a compensation agreement in a client relationship between member/client and gift from client could be considered supplementary compensation (must still report gift to employer). Less likely to gain influence that is detrimental to other clients in this case vs where no compensation agreement exists. - Members need to tell bosses about gifts.

GIPS Input Data

- must have consistency of input data. - on/after January 1, 2011, all portfolios must be valued in accordance with the definition of fair value and GIPS valuation principles.

Something to remember when working with a model and due diligence?

- must test model as a whole, not each of the parts separately.

What should be included in a report for terms of additional compensation?

- nature of compensation, approximate amount of compensation, duration of the agreement.

What does a supervisor need to check when someone working for them makes a recommendation?

- need to ensure that person has a reasonable and adequate basis for recommendations and that they were not relying on material nonpublic info.

Can you advertise past results the same as if they are achieved through retroactively applying a model?

- no

Can you have a partial designation if you pass some levels?

- no

Are employers obligated to conform to Code and Standards?

- no - employer is responsible for a positive work environment, which includes an ethical workplace. - senior mgmt has the additional responsibility to devise compensation structures and incentive arrangements that do not encourage unethical behaviour.

Should a firm stop proprietary trading when it comes into possession of material non public info?

- no (if a firm acts as a market maker, a prohibition on proprietary trading may be counter productive to the goals of maintaining the confidentiality of information and market liquidity). This is especially a concern in the relationships between small, regional brokers/dealers and small issuers. In many cases, a firm will take a small issuer public with the understanding that the firm will continue to be a market maker for that stock. In such situations, a withdrawal by the firm for market making activities would be a clear tip to outsiders. So firms instead should instruct market makers to remain passive with respect to market (that is, to only take contra side of unsolicited customer trades). - case for trading prohibition is more compelling in risk-arbitrage trading. Most prudent course is form firms to suspend arbitrage activity when a security is placed on the watch list.

Does a M/C have to communicate recommendation to all customers to be fair to all their clients?

- no, but the selection process by which customers receive info should be based on suitability and known interest, not on any preferred status. - a common practice to assure fair dealing is to communicate recommendations simultaneously within the firm and to customers.

Would M/C who manage pooled assets to a specific mandate have a responsibility for determining the suitability of the fund as an investment for investors who may be purchasing shares of the fund?

- no, responsibility for determining suitability of an investment for clients can be conferred only on members and candidates who have an advisory relationship with clients.

Do employees need to be M/C to have their supervisor have to follow the Code and Standards for supervisors?

- no.

Does an M/C need to dissociate from a group report that they disagree with?

- not if they believe the consensus opinion has a reasonable and adequate basis and is independent and objective.

Can Mem/Can offer a guaranteed rate of return on an investment?

- not on volatile ones. - can provide info on investment products that have guarantees built into the structure of the products themselves or for which an institution has agreed to cover any losses.

Requirements to refer to as Candidate in CFA Program

- person's application for registration in CFA program has been accepted by CFA Institute, as evidenced by notice of acceptance and the person is enrolled to sit for a specific examination - the registered person has sat for a specified examination but exam results have not yet been received. - person is no longer considered an active candidate if they are registered for but decline to sit an exam or otherwise does not meet the definition of a Candidate as described in CFA Institute bylaws. - Once person is enrolled for future exam, his or her CFA candidacy resumes.

What are "adequate" supervision systems?

- procedures that are designed to meet industry standards, regulatory requirements, the requirements of the Code and Standards, and the circumstances of the firm. - supervisors should figure out where violations would occur most often given their business.

Plagiarism

- prohibited by standard 1(C) - can't use other materials without acknowledging source. - includes using excerpts from other reports to entire reports written by someone else and just changing the names. - can't cite specific quotations attributable to 'leading analysts' without naming the specific references. - presenting statistical elements of forecasts prepared by others and identifying the source but without the qualifying statements or caveats. - using charts/graphs without stating their source. - copying proprietary computerized spreadsheets or algorithms without seeking the cooperation or authorization of their creators. - members can use third party research but just can't represent it as their own. - applies to oral communications as well.

GIPS Fundamentals of Compliance

- properly define the firm - providing compliant presentations to all perspective clients. - adhering to applicable laws and regulations - ensuring that information presented is not false or misleading. - need to have an idea of the definition of the firm as well as the firm's definition of discretion as that establishes criteria to judge which portfolios must be included in a composite.

You are in a hiring position and gifts

- refuse. Even if they don't benefit you personally.

Once admitted, what must a CFA Institute member do to maintain his or her status?

- remit annually to CFA Institute a completed Professional Conduct Statement, which renews the commitment to abide by the requirements of the Code and Standards and the CFA Institute Professional Conduct Program, and - pay applicable CFA Institute membership dues on an annual basis. - if they fail to meet any of the above requirements, they are not considered an active member and until membership is reactive they must not present themselves as active members. Can say they were members, though.

Plagiarism with reports after an employee leaves the firm

- research and models developed while employed by a firm are the property of the firm. - firm retains right to continue using work after employee has left. - firm may issue future reports without providing attribution to the prior analysts but a mem/can may not reissue a previously released report solely under his or her name.

What is one of the most important factors to be considered in matching appropriateness and suitability of an investment with a client's needs and circumstances?

- risk

What if an investment manager suspects that a client is embezzling money?

- should check with firm's compliance department or appropriate legal counsel to determine whether applicable securities regulations require reporting it.

What if an investment advisor issues a new recommendation to all his clients through email but then only calls his biggest 3 to discuss it in detail?

- that's okay because he widely disseminated the info before discussing it with a few. - largest clients received better service as they presumably pay higher fees or have a large amount of asset's under management.

Can the CFA logo be used to identify companies that are composed of all charter holders? Individuals?

- the CFA logo is a certification mark intended to identify individual charter holders and must not be incorporated in a company name or be placed so close to a company logo it gives that impression that the certificate mark certifies the company.

What are key factors in determining if information is material?

- the specificity of the information, the extent of its difference from public information, its nature, its reliability, and its source.

What does a 3rd party look at in verification for GIPS Standards?

- they test the construction of the firm's composites as well as the firm's policies and procedures as they relate to compliance with GIPS standards. - value of verification is widely recognized.

How to tell if M/C is employee or independent contractor?

- this issue will be decided largely by the degree of control exercised by the employing entity over the M/C. Factors determining control include whether the member's hours, work location, and other parameters are set. - M/C's duties within an independent contractor relationship are governed by the oral or written agreement between the member and client.

Who does the responsibilities of M/Cs to gather information and make a suitability analysis prior to making a recommendation or taking investment action fall on?

- those M/Cs who provide investment advice in the course of an advisory relationship with a client. - other M/Cs may be simply executing specific instructions for clients.

Who are CFA Charterholders?

- those individuals who have earned the right to use the CFA designation granted by CFA Institute. - they have satisfied certain requirements, including completion of CFA Program and required years of acceptable work experience. - once granted the right to use the designation, individuals must also satisfy CFA Institute requirements (2 from before). Again, failure to meet membership requirements = do not use CFA designation until reactivated but can refer to years you were active.

Goals of the GIPS Executive Committee

- to establish investment industry best practices for calculating and presenting investment performance that promote investor interests and instill investor confidence. - to obtain worldwide acceptance of a single standard for the calculation and presentation of investment performances based on the principles of fair representation and full disclosure. - to promote the use of accurate and consistent investment performance data - to encourage fair, global competition among investment firms without creating barriers to entry, and - to foster the notion of industry "self-regulation" on a global basis.

Who is the duty of loyalty, prudence and care owed to when managing a fund to an index?

- to invest in a manner consistent with the stated mandate. - the decisions of a fund's manager, although benefiting all fund investors, do not have to be based on an individual investor's requirements and risk profile. - client loyalty and care for those investing in the fund are the responsibility of members and candidates who have an advisory relationship with those individuals.

GIPS real estate

- unless otherwise noted section 6 supplements all of the required and recommended provisions in sections 0-5. - real estate provisions first included in 2005 edition of GIPS and became effective January 1, 2006.

GIPS private equity

- unless otherwise noted section 7 supplements all of the required and recommended provisions in sections 0-5. - private equity provisions first included in 2005 edition of GIPS Standards and were effective January 1 2006.

GIPS Wrap Fee/separately managed account (SMA) portfolios

- unless otherwise noted section 8 supplements all of the required and recommended provisions of sections 0-5. -

What should the appropriateness of risk disclosure be based on?

- what risks were known at the time of the investment actions ("ex ante" basis).

When are fiduciary duties often imposed?

- when an individual or institution is charged with the duty of acting for the benefit of another party, such as managing investment assets. - the duty required in fiduciary relationships exceed what is acceptable in many other business relationships because a fiduciary is in an enhanced position of trust. - although the Code/Standards neither impose a legal responsibility nor require all M/Cs to act as fiduciaries, Standard III(A) requires M/Cs to work in the client's best interest no matter what the job function.

When are Can/Mem responsible for violations they participated in?

- when they knowingly (or should have known) participated.

Where does the responsibility to maintain records that support investment action generally fall?

- with the firm that than individuals.

Can M/C hand over client info to CFA Institute Professional Conduct Program w/o disregarding privacy owed to client?

- yes

Can M/Cs without positions of direct investment management have clients?

- yes, and sometimes the client is easily identifiable (i.e. company executive and firm's shareholders') while other times the client may be the investing public as a whole, in which case the goals on independence and objectivity of research surpass the goal of loyalty to a single organization.

Can an investment services firm provide research coverage to a potential new client?

- yes, as long as the firm does not commit its research department to providing a favourable recommendation.

Can an employee who quits take with them experience of knowledge gained at one employer to their next according to Standard IV(A)?

- yes, but firm records or work performed on behalf of the firm that is stored in paper copy of electronically for the M/C's convenience while employed should be erased or returned to the employer. - the standard does not prohibit former employees from contacting clients of the previous firm as long as the contact information does not come from the records of the former employer or violate an applicable 'noncompete agreement.' - M/Cs are free to use public info after departing to contact former clients w/o violating IV(A) as long as there is not a specific agreement against this.

Code of Ethics

1) Act with integrity, competence, diligence, and respect and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets. 2) Place the integrity of the investment professional and the interests of the clients above their own personal interests. 3) Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities. 4) Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession. 5) Promote the integrity and viability of the global capital market for the ultimate benefit of society. 6) Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.

Responsibilities as a CFA Institute Member/Cands

A) Conduct as Participants in CFA Institute Programs - mem/Cands must not engage in any behaviour that would compromise reputation/integrity of CFA programs. B) Reference to CFA Institute, CFA designation, and the CFA Program - Mems/Cands must not misrepresent/exaggerate meaning/implication of membership in CFA.

Investment Analysis, Recommendations, and Actions

A) Diligence and Reasonable Basis - Candidates/Members must: • Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions. • Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis/recommendation/action. B) Communication with Clients and Prospective Clients - Members and Candidates must: • Disclose to clients and prospective clients basic format/principles regarding how they selected securities/formed portfolio and promptly disclose any changes that might materially affect those processes. • Disclose to clients/PCs significant limitations/risks associated with investment process. • Use reasonable judgment in identifying which factors are important to their investment analyses and include those factors in communication with clients/PCs. • Distinguish between fact and opinion in the presentation of investment analysis and recommendations. C) Record Retention - Mem/Cans must develop and maintain appropriate records to support investment analyses.

Conflicts of Interest

A) Disclosure of Conflicts - Mem/Cans must make full and fair disclosure regarding any matters that could reasonably be expected to impair independence/objectivity or interfere with duties to clients/PCs or employers. Such disclosures must be prominent and in plain language + well communicated. B) Priority of Transactions - Investment transactions for clients/employers has priority over transactions where Mem/Can is beneficial owner. C) Referral Fees - Mems/Cands must disclose to their employers/clients/PCs any payment they get for recommendation of products/services

1)Professionalism

A) Knowledge of the law - Members and Candidates must understand and comply with all applicable laws and regulations. In event of conflict, members and candidates must comply with stricter one. Cannot knowingly participate in/assist and must dissociate from any violation. B)Independence and Objectivity - Members/Cands must use reasonable care and judgment to achieve/maintain independence+objectivity in their professional activities. Cannot accept gifts/compensation that could reasonably be expected to compromise their independence and objectivity. C) Misrepresentation - Members/Cands must not knowingly make any represenstation when it comes to professional activities. - includes written materials not meant for public distribution. Mem/Can share responsibility for accuracy of marketing/distribution materials that pertain to 3rd parties' services, etc. D) Misconduct - Members/Cands must not engage in any dishonest conduct that reflects adversely on their professional reputation, integrity, or competence.

Duties to Employers

A) Loyalty - In matters related to employment, members/Cands must act for benefit of their employer and not deprive them of their skills or divulge secret info or hurt them in any way. B) Additional Compensation Agreements - Members/Cands must not accept gifts/compensation that could reasonable be expected to create a conflict of interest with employer's interest unless they receive written consent form from all parties involved. C) Responsibilities of Supervisors - Members/Cands must make reasonable attempt to ensure that anyone subject to their supervision complies with Laws/Standards.

Integrity of Capital markets

A) Material Nonpublic Information - Members/Cands who possess material, non-public information that could affect the value of an investment must not act or cause others to act on the info. B) Market Manipulation - Member/Cands must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.