Ethic Questions from CFA

Which of the following portfolios is least likely to be included in a composite for a GIPS-compliant performance presentation? A charitable portfolio managed without being charged fees A portfolio dedicated to investing exclusively in real estate A portfolio that was terminated at the end of the last period (I got it wrong)

A charitable portfolio managed without being charged fees GIPS require that all fee-paying, discretionary portfolios be included in at least one composite. A charitable portfolio that pays no fees need not be included in a composite.

*** Schleif, CFA, is an equity analyst at an investment banking division of Mokara Financial Group, a full service financial group. Schleif uses a multi-factor computer model to make stock recommendations for all clients of Mokara. Schleif discovers that the model contains an error. If the error were corrected, her most recent buy recommendation communicated to all clients would change to a sell. Schleif corrects the error, changing the buy to a sell recommendation, and then simultaneously distributes via e-mail the revision to all investment banking clients who received the initial recommendation. A week later, Schleif sells the same shares she held in her personal portfolio. Concerning her actions, Schleif most likely violated which of the following CFA Institute Standards of Professional Conduct? A. Fair Dealing B. Priority of Transactions C. Diligence and Reasonable Basis ( I got it wrong, I didn't read the question carefully again!!!) (I got it right the second time)

A. Fair Dealing

*** 8. Albert and Tye, who recently started their own investment advisory business, have registered to take the Level III CFA examination. Albert's business card reads, "Judy Albert, CFA Level II." Tye has not put anything about the CFA designation on his business card, but promotional material that he designed for the business describes the CFA requirements and indicates that Tye participates in the CFA Program and has completed Levels I and II. According to the Standards: A. Albert has violated the Standards, but Tye has not. B. Tye has violated the Standards, but Albert has not. C. Both Albert and Tye have violated the Standards. [I got it wrong the second time]

A. Albert has violated the Standards, but Tye has not.

***** 16. Anderb, a portfolio manager for XYZ Investment Management Company—a registered investment organization that advises investment firms and private accounts—was promoted to that position three years ago. Bates, her supervisor, is responsible for reviewing Anderb's portfolio account transactions and her required monthly reports of personal stock transactions. Anderb has been using Jonelli, a broker, almost exclusively for brokerage transactions for the portfolio account. For securities in which Jonelli's firm makes a market, Jonelli has been giving Anderb lower prices for personal purchases and higher prices for personal sales than Jonelli gives to Anderb's portfolio accounts and other investors. Anderb has been filing monthly reports with Bates only for those months in which she has no personal transactions, which is about every fourth month. Which of the following is most likely to be a violation of the Code and Standards? A. Anderb failed to disclose to her employer her personal transactions. B. Anderb owned the same securities as those of her clients. C. Bates allowed Anderb to use Jonelli as her broker for personal trades.

A. Anderb failed to disclose to her employer her personal transactions. This question involves three of the Standards. Anderb, the portfolio manager, has been obtaining more favorable prices for her personal securities transactions than she gets for her clients, which is a breach of Standard III(A)-Loyalty, Prudence, and Care. In addition, she violated Standard I(D)-Misconduct by failing to adhere to company policy and by hiding her personal transactions from her firm. Anderb's supervisor, Bates, violated Standard IV(C)-Responsibilities of Supervisors; although the company had requirements for reporting personal trading, Bates failed to adequately enforce those requirements. Answer B does not represent a violation because Standard VI(B)-Priority of Transactions requires that personal trading in a security be conducted after the trading in that security of clients and the employer. The Code and Standards do not prohibit owning such investments, although firms may establish policies that limit the investment opportunities of members and candidates. Answer C does not represent a violation because the Code and Standards do not contain a prohibition against employees using the same broker for their personal accounts that they use for their client accounts. This arrangement should be disclosed to the employer so that the employer may determine whether a conflict of interest exists

*** 14. Brown works for an investment counseling firm. Green, a new client of the firm, is meeting with Brown for the first time. Green used another counseling firm for financial advice for years, but she has switched her account to Brown's firm. After spending a few minutes getting acquainted, Brown explains to Green that she has discovered a highly undervalued stock that offers large potential gains. She recommends that Green purchase the stock. Brown has committed a violation of the Standards. What should she have done differently? A. Brown should have determined Green's needs, objectives, and tolerance for risk before making a recommendation of any type of security. B. Brown should have thoroughly explained the characteristics of the company to Green, including the characteristics of the industry in which the company operates. C. Brown should have explained her qualifications, including her education, training, and experience and the meaning of the CFA designation.

A. Brown should have determined Green's needs, objectives, and tolerance for risk before making a recommendation of any type of security.

*** 27. Carter works for Invest Today, a local asset management firm. A broker that provides Carter with proprietary research through client brokerage arrangements is offering a new trading service. The broker is offering low-fee, execution-only trades to complement its traditional full-service, execution-and-research trades. To entice Carter and other asset managers to send additional business its way, the broker will apply the commissions paid on the new service toward satisfying the brokerage commitment of the prior full-service arrangements. Carter has always been satisfied with the execution provided on the full-service trades, and the new low-fee trades are comparable to the fees of other brokers currently used for the accounts that prohibit soft dollar arrangements. A. Carter can trade for his accounts that prohibit soft dollar arrangements under the new low-fee trading scheme B. Carter cannot use the new trading scheme because the commissions are prohibited by the soft dollar restrictions of the accounts. C. Carter should trade only through the new low-fee scheme and should increase his trading volume to meet his required commission commitment.

A. Carter can trade for his accounts that prohibit soft dollar arrangements under the new low-fee trading scheme Answer A is correct. The question relates to Standard III(A)-Loyalty, Prudence, and Care. Carter believes the broker offers effective execution at a fee that is comparable with those of other brokers, so he is free to use the broker for all accounts. Answer B is incorrect because the accounts that prohibit soft dollar arrangements do not want to fund the purchase of research by Carter. The new trading scheme does not incur additional commissions from clients, so it would not go against the prohibitions. Answer C is incorrect because Carter should not incur unnecessary or excessive "churning" of the portfolios (excessive trading) for the purpose of meeting the brokerage commitments of soft dollar arrangements.

36. During a round of golf, Rodriguez, chief financial officer of Mega Retail, mentions to Hart, a local investment adviser and long-time personal friend, that Mega is having an exceptional sales quarter. Rodriguez expects the results to be almost 10% above the current estimates. The next day, Hart initiates the purchase of a large stake in the local exchange-traded retail fund for her personal account. A. Hart violated the Code and Standards by investing in the exchange-traded fund that included Mega Retail. B. Hart did not violate the Code and Standards because she did not invest directly in securities of Mega Retail. C. Rodriguez did not violate the Code and Standards because the comments made to Hart were not intended to solicit an investment in Mega Retail. [This question could've been better if it says that the the company is included in the fund or not, but I guess this works too]

A. Hart violated the Code and Standards by investing in the exchange-traded fund that included Mega Retail.

*** 30. Long has been asked to be the keynote speaker at an upcoming investment conference. The event is being hosted by one of the third-party investment managers currently used by his pension fund. The manager offers to cover all conference and travel costs for Long and make the conference registrations free for three additional members of his investment management team. To ensure that the conference obtains the best speakers, the host firm has arranged for an exclusive golf outing for the day following the conference on a local championship-caliber course. Which of the following is least likely to violate Standard I(B)? A. Long may accept only the offer to have his conference-related expenses paid by the host firm. B. Long may accept the offer to have his conference-related expenses paid and may attend the exclusive golf outing at the expense of the hosting firm. C. Long may accept the entire package of incentives offered to speak at this conference. *** 31. Andrews, a private wealth manager, is conducting interviews for a new research analyst for his firm. One of the candidates is Wright, an analyst with a local investment bank. During the interview, while Wright is describing his analytical skills, he mentions a current merger in which his firm is acting as the adviser. Andrews has heard rumors of a possible merger between the two companies, but no releases have been made by the companies concerned. Which of the following actions by Andrews is least likely a violation of the Code and Standards? A. Waiting until the next day before trading on the information to allow time for it to become public. B. Notifying all investment managers in his firm of the new information so none of their clients are disadvantaged. C. Placing the securities mentioned as part of the merger on the firm's restricted trading list.

A. Long may accept only the offer to have his conference-related expenses paid by the host firm. C. Placing the securities mentioned as part of the merger on the firm's restricted trading list.

Which of the following best identifies an internal trait that may lead to poor ethical decision making? A. Overconfidence B. Loyalty to employer C. Promise of money or prestige

A. Overconfidence

**************** 11. The mosaic theory holds that an analyst: A. Violates the Code and Standards if the analyst fails to have knowledge of and comply with applicable laws. B. Can use material public information and nonmaterial nonpublic information in the analyst's analysis. C. Should use all available and relevant information in support of an investment recommendation

B. Can use material public information and nonmaterial nonpublic information in the analyst's analysis. I keep getting this wrong because I don't read the question properly. The correct answer is B. This question deals with Standard II(A)-Material Nonpublic Information. The mosaic theory states that an analyst may use material public information and nonmaterial nonpublic information in creating a larger picture than shown by any individual piece of information and the conclusions the analyst reaches become material only after the pieces are assembled. Answers A and C are accurate statements relating to the Code and Standards but do not describe the mosaic theory.

******************** 13. One of the discretionary accounts managed by Farnsworth is the Jones Corporation employee profit-sharing plan. Jones, the company president, recently asked Farnsworth to vote the shares in the profit-sharing plan in favor of the slate of directors nominated by Jones Corporation and against the directors sponsored by a dissident stockholder group. Farnsworth does not want to lose this account because he directs all the account's trades to a brokerage firm that provides Farnsworth with useful information about tax-free investments. Although this information is not of value in managing the Jones Corporation account, it does help in managing several other accounts. The brokerage firm providing this information also offers the lowest commissions for trades and provides best execution. Farnsworth investigates the director issue, concludes that the management-nominated slate is better for the long-run performance of the company than the dissident group's slate, and votes accordingly. Farnsworth: A. Violated the Standards in voting the shares in the manner requested by Jones but not in directing trades to the brokerage firm. B. Did not violate the Standards in voting the shares in the manner requested by Jones or in directing trades to the brokerage firm. C. Violated the Standards in directing trades to the brokerage firm but not in voting the shares as requested by Jones.

B. Did not violate the Standards in voting the shares in the manner requested by Jones or in directing trades to the brokerage firm.

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

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

35. Quinn sat for the Level III CFA exam this past weekend. He updates his resume with the following statement: "In finishing the CFA Program, I improved my skills related to researching investments and managing portfolios. I will be eligible for the CFA charter upon completion of the required work experience." A. Quinn violated the Code and Standards by claiming he improved his skills through the CFA Program. B. Quinn violated the Code and Standards by incorrectly stating that he is eligible for the CFA charter. C. Quinn did not violate the Code and Standards with his resume update.

B. Quinn violated the Code and Standards by incorrectly stating that he is eligible for the CFA charter.

************************ 9. Scott works for a regional brokerage firm. He estimates that Walkton Industries will increase its dividend by US$1.50 a share during the next year. He realizes that this increase is contingent on pending legislation that would, if enacted, give Walkton a substantial tax break. The US representative for Walkton's home district has told Scott that, although she is lobbying hard for the bill and prospects for its passage are favorable, concern of the US Congress over the federal deficit could cause the tax bill to be voted down. Walkton Industries has not made any statements about a change in dividend policy. Scott writes in his research report, "We expect Walkton's stock price to rise by at least US$8.00 a share by the end of the year because the dividend will increase by US$1.50 a share. Investors buying the stock at the current time should expect to realize a total return of at least 15% on the stock." According to the Standards: A. Scott violated the Standards because he used material inside information. B. Scott violated the Standards because he failed to separate opinion from fact. C. Scott violated the Standards by basing his research on uncertain predictions of future government action. [I keep getting wrong on this question]

B. Scott violated the Standards because he failed to separate opinion from fact.

*** 6. Willier is the research analyst responsible for following Company X. All the information he has accumulated and documented suggests that the outlook for the company's new products is poor, so the stock should be rated a weak "hold." During lunch, however, Willier overhears a financial analyst from another firm whom he respects offer opinions that conflict with Willier's forecasts and expectations. Upon returning to his office, Willier releases a strong "buy" recommendation to the public. Willier: A. Violated the Standards by failing to distinguish between facts and opinions in his recommendation. B. Violated the Standards because he did not have a reasonable and adequate basis for his recommendation. C. Was in full compliance with the Standards.

B. Violated the Standards because he did not have a reasonable and adequate basis for his recommendation.

*** 20. Smith is a financial analyst with XYZ Brokerage Firm. She is preparing a purchase recommendation on JNI Corporation. Which of the following situations is most likely to represent a conflict of interest for Smith that would have to be disclosed? A. Smith frequently purchases items produced by JNI. B. XYZ holds for its own account a substantial common stock position in JNI. C. Smith's brother-in-law is a supplier to JNI. ------------ 21. Michelieu tells a prospective client, "I may not have a long-term track record yet, but I'm sure that you'll be very pleased with my recommendations and service. In the three years that I've been in the business, my equity-oriented clients have averaged a total return of more than 26% a year." The statement is true, but Michelieu only has a few clients, and one of his clients took a large position in a penny stock (against Michelieu's advice) and realized a huge gain. This large return caused the average of all of Michelieu's clients to exceed 26% a year. Without this one investment, the average gain would have been 8% a year. Has Michelieu violated the Standards? A. No, because Michelieu is not promising that he can earn a 26% return in the future. B. No, because the statement is a true and accurate description of Michelieu's track record. C. Yes, because the statement misrepresents Michelieu's track record. ------------- 22. An investment banking department of a brokerage firm often receives material nonpublic information that could have considerable value if used in advising the firm's brokerage clients. In order to conform to the Code and Standards, which one of the following is the best policy for the brokerage firm? A. Permanently prohibit both "buy" and "sell" recommendations of the stocks of clients of the investment banking department. B. Establish physical and informational barriers within the firm to prevent the exchange of information between the investment banking and brokerage operations. C. Monitor the exchange of information between the investment banking department and the brokerage operation. ------------- 23. Stewart has been hired by Goodner Industries, Inc., to manage its pension fund. Stewart's duty of loyalty, prudence, and care is owed to: A. The management of Goodner. B. The participants and beneficiaries of Goodner's pension plan. C. The shareholders of Goodner

B. XYZ holds for its own account a substantial common stock position in JNI. C. Yes, because the statement misrepresents Michelieu's track record. B. Establish physical and informational barriers within the firm to prevent the exchange of information between the investment banking and brokerage operations. B. The participants and beneficiaries of Goodner's pension plan.

8. A CFA Institute member would violate the standard for material nonpublic information by: A. conducting price distortion practices. B. inappropriately causing others to act. C. inadequately maintaining investment records. 11. The Duties to Employers standard states that members and candidates must not: A. accept any gifts that might compromise their independence and objectivity. B. deprive their employer of their skills and abilities as related to their employment. C. accept compensation competing with their employer's interest and with the written consent of all parties involved. 12. The Investment Analysis, Recommendations, and Actions standard states that members and candidates must: A. find an investment suitable for their client before making a recommendation. B. make reasonable efforts to ensure that performance presentation is fair, accurate, and complete. C. distinguish between fact and opinion in the presentation of investment analysis and recommendations. 13. Based on the Conflicts of Interest standard, members and candidates must: A. disclose, as required by law, those conflicts interfering with their professional duties. B. disclose, as appropriate, any benefit paid to others for the recommendation of products. C. seek employer approval before prioritizing their investment transactions over those clients.

B. inappropriately causing others to act. B. deprive their employer of their skills and abilities as related to their employment. C. distinguish between fact and opinion in the presentation of investment analysis and recommendations. B. disclose, as appropriate, any benefit paid to others for the recommendation of products

7. Situational influences in decision making will most likely be minimized if: A. strong compliance programs are in place. B. longer-term consequences are considered. C. individuals believe they are truthful and honest.

B. longer-term consequences are considered

Decision makers who use a compliance approach are most likely to: A. avoid situational influences. B. oversimplify decision making. C. consider consider more factors than when using an ethical decision-making approach. 11. An ethical decision-making framework will most likely: A. include a pre-determined, uniform sequence. B. focus exclusively on confirmable facts and relationships. C. help avoid a decision that has unanticipated ethical consequences

B. oversimplify decision making. A compliance approach can oversimplify decision making and may not encourage decision makers to consider the larger picture. A strong compliance culture may be a good start in developing an ethical culture but can become another situational influence that may result in employees failing to consider other important factors. C. help avoid a decision that has unanticipated ethical consequences Using an ethical decision-making framework consistently will help you develop sound judgment and decision-making skills and avoid making decisions that have unanticipated ethical consequences. The decision-making process is often iterative, and the decision maker may move between phases of the framework. A decision maker should consider more than confirmable facts and relationships; for example, the decision maker should consider situational influences and personal biases.

Smith, a research analyst with a brokerage firm, decides to change his recommendation for the common stock of Green Company, Inc., from a "buy" to a "sell." He mails this change in investment advice to all the firm's clients on Wednesday. The day after the mailing, a client calls with a buy order for 500 shares of Green Company. In this circumstance, Smith should: A.Accept the order. B.Advise the customer of the change in recommendation before accepting the order. C.Not accept the order because it is contrary to the firm's recommendation.

B.Advise the customer of the change in recommendation before accepting the order. This question involves Standard III(B)-Fair Dealing. Smith disseminated a change in the stock recommendation to his clients but then received a request contrary to that recommendation from a client who probably had not yet received the recommendation

When Abdullah Younis, CFA, was hired as a portfolio manager at an asset management firm two years ago and was told he could allocate his work hours as he saw fit. At that time, Younis served on the board of three nonpublic golf equipment companies and managed a pooled investment fund for several members of his immediate family. Younis was not compensated for his board service or for managing the pooled fund. Younis' investment returns attract interest from friends and co-workers who persuade him to include their assets in his investment pool. Younis recently retired from all board responsibilities and now spends more than 80% of his time managing the investment pool for which he charges non-family members a management fee. Younis has never told his employer about any of these activities. To comply with the CFA Institute Standards of Professional Conduct with regards to his business activities over the past two years, Younis would least likely be required to disclose which of the following to his employer? Board activities Family investment pool management Non-family member management fees (I got it wrong, silly mistake)

Board activities A is correct because golf equipment is a business independent of the financial services industry such that any board obligations would not likely be considered a conflict of interest requiring disclosure according to Standard IV(B)-Additional Compensation Arrangements. Standard IV(B) requires members and candidates to obtain permission from their employer before accepting compensation or other benefits from third parties for the services that might create a conflict with their employer's interests. Managing investments for family and non-family members could likely create a conflict of interest for Younis' employer and should be disclosed to his employer.

Todd Elder is a junior analyst with Robust Advisors. One of his duties is to proofread and fact-check reports issued by the firm's research department prior to release. His supervisor, Jane Cox, notices Elder's increasingly lavish lifestyle that seems inconsistent with his income. After checking trading records, Cox discovers that Elder has been purchasing shares ahead of the release of the research department's recommendations. Although the firm requires all employees to submit quarterly reports listing personal trades, Elder has not done so. Which of the following is correct? Both Elder and Cox violated the Standards. Elder violated the Standards but Cox did not. Cox violated the Standards but Elder did not.

Both Elder and Cox violated the Standards. Elder violated the Standards by front-running the firm's recommendations. Cox violated the Standard by failing to require that Elder submit his quarterly personal trading report. Although the firm has a compliance procedure in place to monitor employee trades, Cox has failed to enforce that procedure with respect to Elder.

* 26. A former hedge fund manager, Jackman, has decided to launch a new private wealth management firm. From his prior experiences, he believes the new firm needs to achieve US$1 million in assets under management in the first year. Jackman offers a $10,000 incentive to any adviser who joins his firm with the minimum of $200,000 in committed investments. Jackman places notice of the opening on several industry web portals and career search sites. Which of the following is correct according to the Code and Standards? A. A member or candidate is eligible for the new position and incentive if he or she can arrange for enough current clients to switch to the new firm and if the member or candidate discloses the incentive fee. B. A member or candidate may not accept employment with the new firm because Jackman's incentive offer violates the Code and Standards. C. A member or candidate is not eligible for the new position unless he or she is currently unemployed because soliciting the clients of the member's or candidate's current employer is prohibited.

C. A member or candidate is not eligible for the new position unless he or she is currently unemployed because soliciting the clients of the member's or candidate's current employer is prohibited.

*4. Which of the following statements clearly conflicts with the recommended procedures for compliance presented in the CFA Institute Standards of Practice Handbook? A. Firms should disclose to clients the personal investing policies and procedures established for their employees. B. Prior approval must be obtained for the personal investment transactions of all employees. C. For confidentiality reasons, personal transactions and holdings should not be reported to employers unless mandated by regulatory organizations.

C. For confidentiality reasons, personal transactions and holdings should not be reported to employers unless mandated by regulatory organizations. The correct answer is C. This question asks about compliance procedures relating to personal investments of members and candidates. The statement in answer C clearly conflicts with the recommended procedures in the Standards of Practice Handbook. Employers should compare personal transactions of employees with those of clients on a regular basis regardless of the existence of a requirement by any regulatory organization. Such comparisons ensure that employees' personal trades do not conflict with their duty to their clients, and the comparisons can be conducted in a confidential manner. The statement in answer A does not conflict with the procedures in the Handbook. Disclosure of such policies will give full information to clients regarding potential conflicts of interest on the part of those entrusted to manage their money. Answer B is incorrect because firms are encouraged to establish policies whereby employees clear their personal holdings and transactions with their employers.

*** 3. Jamison is a junior research analyst with Howard & Howard, a brokerage and investment banking firm. Howard & Howard's mergers and acquisitions department has represented the Britland Company in all of its acquisitions for the past 20 years. Two of Howard & Howard's senior officers are directors of various Britland subsidiaries. Jamison has been asked to write a research report on Britland. What is the best course of action for her to follow? A. Jamison may write the report but must refrain from expressing any opinions because of the special relationships between the two companies. B. Jamison should not write the report because the two Howard & Howard officers serve as directors for subsidiaries of Britland. C. Jamison may write the report if she discloses the special relationships with the company in the report.

C. Jamison may write the report if she discloses the special relationships with the company in the report. The correct answer is C. This question involves Standard VI(A)-Disclosure of Conflicts. The question establishes a conflict of interest in which an analyst, Jamison, is asked to write a research report on a company that is a client of the analyst's employer. In addition, two directors of the company are senior officers of Jamison's employer. Both facts establish that there are conflicts of interest that must be disclosed by Jamison in her research report. Answer B is incorrect because an analyst is not prevented from writing a report simply because of the special relationship the analyst's employer has with the company as long as that relationship is disclosed. Answer A is incorrect because whether or not Jamison expresses any opinions in the report is irrelevant to her duty to disclose a conflict of interest. Not expressing opinions does not relieve the analyst of the responsibility to disclose the special relationships between the two companies.

10. Which one of the following actions will help to ensure the fair treatment of brokerage firm clients when a new investment recommendation is made? A. Informing all people in the firm in advance that a recommendation is to be disseminated. B. Distributing recommendations to institutional clients prior to individual accounts. C. Minimizing the time between the decision and the dissemination of a recommendation. **************** 11. The mosaic theory holds that an analyst: A. Violates the Code and Standards if the analyst fails to have knowledge of and comply with applicable laws. B. Can use material public information and nonmaterial nonpublic information in the analyst's analysis. C. Should use all available and relevant information in support of an investment recommendation

C. Minimizing the time between the decision and the dissemination of a recommendation. B. Can use material public information and nonmaterial nonpublic information in the analyst's analysis.

*** 15. Grey recommends the purchase of a mutual fund that invests solely in long-term US Treasury bonds. He makes the following statements to his clients: i. "The payment of the bonds is guaranteed by the US government; therefore, the default risk of the bonds is virtually zero." ii. "If you invest in the mutual fund, you will earn a 10% rate of return each year for the next several years based on historical performance of the market." Did Grey's statements violate the CFA Institute Code and Standards? A. Neither statement violated the Code and Standards. B. Only statement I violated the Code and Standards. C. Only statement II violated the Code and Standards.

C. Only statement II violated the Code and Standards.

4. As stated in the revised 11th edition, the Standards of Professional Conduct: A. require supervisors to focus on the detection and prevention of violations. B. adopt separate ethical considerations for programs such as CIPM and Investment Foundations. C. address the risks and limitations of recommendations being made to clients. 6. Which of the following statements best describes an aspect of the Standards of Professional Conduct? Members and candidates are required to: A. ensure any portfolio mandate followed is fair, accurate, and complete. B. promptly disclose changes that might materially affect investment processes. C. have a reasonable and adequate basis for decisions about client confidentiality. 7. Which of the following responses most completely represents an ethical principle of CFA Institute as outlined in the Standards of Practice Handbook? A. Individual professionalism B. Responsibilities to clients and employers C. Ethics involved in investment analysis and recommendations

C. address the risks and limitations of recommendations being made to clients. B. promptly disclose changes that might materially affect investment processes A. Individual professionalism

12. When an ethical dilemma occurs, an investment professional should most likely first raise the issue with a: A. mentor outside the firm. B. professional body's hotline. C. senior individual in the firm.

C. senior individual in the firm. When a dilemma occurs, raising an issue internally with a senior employee is often a good starting place and creates an opportunity for an independent internal review. Protecting the client and the firm may take priority over the position of an individual professional raising a concern.

Cannan has been working from home on weekends and occasionally saves correspondence with clients and completed work on her home computer. Because of worsening market conditions, Cannan is one of several employees released by her firm. While Cannan is looking for a new job, she uses the files she saved at home to request letters of recommendation from former clients. She also provides to prospective clients some of the reports as examples of her abilities. Cannan violated the Code and Standards because she did not receive permission from her former employer to keep or use the files after her employment ended. Cannan did not violate the Code and Standards because the files were created and saved on her own time and computer. Cannan violated the Code and Standards because she is prohibited from saving files on her home computer.

Cannan violated the Code and Standards because she did not receive permission from her former employer to keep or use the files after her employment ended.

*** Hezi Cohen, a CFA candidate, is a heavy user of social networking sites on the Internet. His favorite site only allows a limited number of characters for each entry so he has learned to abbreviate everything, including CFA trademarks. Cohen also enjoys professional networking sites and contributes regularly to blogs that discuss the broad topical areas covered within the CFA Program. In addition, he posts to these blogs pieces he has written in his area of expertise: retirement planning. By claiming to be an expert on retirement planning, he believes his stature within the investment community increases and he can gain more clients. Which internet activity can Cohen most likely continue to be in compliance with the CFA Standards of Professional Conduct? Use of abbreviations. Claiming retirement planning expertise. Blogging about broad topical areas within the CFA Program. [I got this wrong, great question, pay more atttention]

Claiming retirement planning expertise. B is correct because the Standards do not prevent a person from claiming to be an expert in their area of specialty as long it is not a misrepresentation and/or an exaggeration of their skill and expertise. A is incorrect because according to Standard VII, CFA Institute trademarks are not allowed to be abbreviated. C is incorrect because Standard VII-Responsibilities as a CFA Institute Member or CFA Candidate restricts the disclosing of all aspects of the CFA exam, including broad topical areas. These are considered confidential and thus should not be discussed over the Internet.

Which statement about a manager's use of client brokerage commissions violates the Code and Standards? A client may direct a manager to use that client's brokerage commissions to purchase goods and services for that client. Client brokerage commissions should be used to benefit the client and should be commensurate with the value of the brokerage and research services received. Client brokerage commissions may be directed to pay for the investment manager's operating expenses.

Client brokerage commissions may be directed to pay for the investment manager's operating expenses. The correct answer is C. This question involves Standard III(A)-Loyalty, Prudence, and Care and the specific topic of soft dollars or soft commissions. Answer C is the correct choice because client brokerage commissions may not be directed to pay for the investment manager's operating expenses.

*** ABC Investment Management acquires a new, very large account with two concentrated positions. The firm's current policy is to add new accounts for the purpose of performance calculation after the first full month of management. Cupp is responsible for calculating the firm's performance returns. Before the end of the initial month, Cupp notices that one of the significant holdings of the new accounts is acquired by another company, causing the value of the investment to double. Because of this holding, Cupp decides to account for the new portfolio as of the date of transfer, thereby allowing ABC Investment to reap the positive impact of that month's portfolio return. Cupp did not violate the Code and Standards because the GIPS standards allow composites to be updated on the date of large external cash flows. Cupp did not violate the Code and Standards because companies are allowed to determine when to incorporate new accounts into their composite calculation. Cupp violated the Code and Standards because the inclusion of the new account produces an inaccurate calculation of the monthly results according to the firm's stated policies.

Cupp violated the Code and Standards because the inclusion of the new account produces an inaccurate calculation of the monthly results according to the firm's stated policies. Answer C is correct. Cupp violated Standard III(D)-Performance Presentations when he deviated from the firm's stated policies solely to capture the gain from the holding being acquired. Answer A is incorrect because the firm does not claim GIPS compliance and the GIPS standards require external cash flows to be treated in a consistent manner with the firm's documented policies. Answer B is incorrect because the firm does not state that it is updating its composite policies. If such a change were to occur, all cash flows for the month would have to be reviewed to ensure their consistent treatment under the new policy.

*********** Jack Steyn, CFA, recently became the head of the trading desk at a large investment management firm that specializes in domestic equities. While reviewing the firm's trading operations he notices that clients give discretion to the manager to select brokers on the basis of their overall services to the management firm. Despite the client directive, Steyn would most likely violate Standard III(A)-Loyalty, Prudence, and Care if he pays soft commissions for which of the following services from the brokers? Equity research reports Investment conference attendance Database services for offshore investments

Database services for offshore investments C is correct because Standard III(A)-Loyalty, Prudence, and Care stipulates that the client owns the brokerage. Therefore, members and candidates are required to only use client brokerage to the benefit of the clients (soft commissions policy). As the firm specializes in domestic equity, an offshore investment database service would not benefit clients.

*********************** PNW Bank publishes Investment Monthly magazine, which highlights a specific stock in each issue. Publication of the magazine invariably causes the highlighted stocks to rise significantly in value. Rachel Coursing, CFA, manager of PNW's marketing department, often trades in the securities mentioned in the Investment Monthly articles prior to publication of the magazine. Coursing has access to the recommendations prior to the magazine's publication because the magazine is created in her department and edited by her. PNW's Code of Ethics restricts trading by all of the bank's analysts and portfolio managers and requires their trades to be pre-cleared by the Compliance Department. Coursing least likely violated which of the following CFA Institute Standards of Professional Conduct? Priority of Transactions Diligence and Reasonable Basis Material Nonpublic Information [I got this wrong, great question]

Diligence and Reasonable Basis B is correct because Coursing has not violated Standard V-Investment Analysis, Recommendations, and Actions, as she is not analyzing investments, making investment recommendations, or taking investment actions for clients. Coursing has violated Standard VI(B)-Priority of Transactions as clients of the bank have not been given priority over investment transactions in which a member or candidate is the beneficial owner. In addition, Coursing violated Standard II(A)-Material Nonpublic Information by trading on material nonpublic information. The Investment Monthly article written by PNW is considered nonpublic until the magazine is widely distributed, and publication of the magazine will materially impact the market price of stocks highlighted. Even though Coursing is not required by her bank to pre-clear her trades, she is restricted from trading by Standard II(A).

***************** Wouter Duyck, CFA, is the sole proprietor of an investment advisory firm serving several hundred middle class retail clients. Duyck claims to be different from his competitors because he conducts research himself. He discloses that to simplify the management of all these accounts he has created a recommended list of stocks, from which he selects investments for all of his clients based on their suitability. Duyck's recommended list of stocks is obtained from his primary broker, who has completed due diligence on each stock. Duyck's recommended list least likely violates which of the following CFA Institute Standards of Professional Conduct? Fair Dealing. Misrepresentation. Diligence and Reasonable Basis. (Great Question, I got it wrong)

Fair Dealing. A is correct because Standard III(B)-Fair Dealing concerns the fair treatment of clients when making investment recommendations or taking investment action, but there is no indication that the advisor has discriminated against any clients with regard to his recommendations as he invests all clients in the same universe of stocks. The advisor has violated Standard I(C)-Misrepresentation with his research, which is not independently created and instead relies upon information provided by his broker. This is contrary to the advisor telling clients he does his own independent investment research. In addition, the advisor has violated Standard V(A)-Diligence and Reasonable Basis, as he has not made reasonable and diligent efforts to determine if the third party's research is sound. B is incorrect, as the advisor has violated Standard I(C)-Misrepresentation with his research, which is not independently created and instead relies upon information provided by his broker. C is incorrect, as the advisor has violated Standard V(A)-Diligence and Reasonable Basis as he does not have a reasonable basis for making his investment recommendations and relies solely on his broker's research to create his list of stock investments. This is directly contrary to telling clients that he does his own independent investment research.

********************* Dilshan Kumar, CFA, is a world-renowned mining analyst based in London. Recently he received an invitation from Cerberus Mining, a London Stock Exchange listed company with headquarters in Johannesburg, South Africa. Cerberus asked Kumar to join a group of prominent analysts from around the world on a tour of their mines in South Africa, some of which are in remote locations, not easily accessible. The invitation also includes an arranged wildlife safari to Krueger National Park for the analysts. Kumar accepts the invitation planning to visit other mining companies he covers in Namibia and Botswana after the safari. To prevent violating any CFA Institute Standards of Professional Conduct, it is most appropriate for Kumar to only accept which type of paid travel arrangements from Cerberus? Ground transportation to Krueger National Park. Economy class round trip ticket from London to Johannesburg. Flights on a private airplane to the remote mining sites in South Africa. (Great question)

Flights on a private airplane to the remote mining sites in South Africa. C is correct because Standard I(B)-Independence and Objectivity requires members and candidates to use reasonable care and judgment to maintain their independence and objectivity in their professional activities. Best practice dictates that Kumar only accept transportation to the remote mining sites in that it is unlikely he would be able to source commercial flights to the locations and ground transport may not be viable. As Kumar would normally visit mining sites around the world as part of his job and the fact that he is combining this trip to other mines site in different countries, it would be inappropriate for Cerberus to pay for the analyst's travel expenses from London. While Kumar could go on safari with the group of analysts, he should pay his own way so as to restrict any influence such a gift could possibly have when making his investment recommendations on Cerberus.

*** Got it from CFA Mock Exam: [I most likely drop what i got wrong] Tim Herndon, CFA, is a senior analyst working with Brad Welch, CFA. They work for a large brokerage firm and co-author all their research reports. Herndon believes Welch is in violation of the CFA Institute Standards of Professional Conduct concerning reasonable basis for a company under their coverage. Herndon has had several discussions with Welch, as his supervisor, and has discussed the issue with the firm's compliance department. Both Welch and the compliance department appear to have dismissed his concerns. Which of the following actions should Herndon most likely take to avoid being in violation of the CFA Institute Standards of Professional Conduct? Threaten to leave the firm. Continue discussing the matter with Welch. Have his name removed from further research reports. [Great option, check explanation]

Have his name removed from further research reports. [There may be a case that options can seem very likely. I guess you first consider not including your name. Second, it's disassociate.]

Rajiv Patel is planning on leaving his employer. He has provided two-week notice to his supervisor, who reminded Patel that he signed a nonsolicitation agreement with his employer. Under that agreement, he may not solicit clients to join his new firm for at least one year after his employment ends. Patel has an account with a professional social media website on which many of his clients have joined his network. Neither his employer nor Patel has announced his planned departure to any clients. When is it appropriate for Patel to update his employment status on the social network's profile? He may update his profile immediately. In two weeks when his employment officially ends. He may not update his profile until the one-year anniversary of his departure. (I got it wrong)

In two weeks when his employment officially ends. Standard IV(A) requires Patel to place his employer's interest ahead of his own. Patel may update his social network profiles as soon as his resignation becomes effective, but must refrain from contacting former clients if required by his non-solicitation agreement.

*** Jackson Barnes, CFA, works for an insurance company providing financial planning services to clients for a fee. Barnes has developed a network of specialists, including accountants, lawyers, and brokers, who contribute their expertise to the financial planning process. Each of the specialists is an independent contractor. Each contractor bills Barnes separately for the work he or she performs, providing a discount based upon the number of clients Barnes has referred. What steps should Barnes take to be consistent with the CFA Institute Standards of Professional Conduct? Have his independent contractors approved by the insurance company List the consideration he receives from the specialists on monthly client invoices Inform potential clients about his arrangement with the contractors before they agree to hire him

Inform potential clients about his arrangement with the contractors before they agree to hire him C is correct because the referral arrangements should be disclosed to potential clients "before entry into any formal agreement for services" and not after the fact. This allows potential clients to consider whether the arrangement causes them any potential harm as a result of the arrangement (e.g., higher fees and potential conflicts of interests). A is incorrect as Standard VI(C)-Referral Fees specifically requires referral arrangements be disclosed to clients so this step should be taken regardless of any other additional actions. B is incorrect as the referral arrangements should be disclosed to clients before entry into any formal agreement for services and not after the fact, which would be the case with the disclosure being provided on the bills sent out in arrears.

Rene Polin, CFA, is a portfolio manager in the private wealth division of a bank. One of Polin's clients is quite pleased with the returns his portfolio experienced over the past three years and invites him to attend the World Series in the client's luxury suite. Polin and his wife attend the event, enjoying the game and ample refreshments after obtaining written consent from his supervisor. Did Polin violate the Standards of Professional Conduct? Yes, because lavish gifts may not be accepted under any circumstances. Yes, because gifts from clients are judged more strictly than gifts from subject firms. No, because he obtained written consent from his supervisor prior to acceptance.

No, because he obtained written consent from his supervisor prior to acceptance.

Elaine Brody is an analyst with Foxtrot Advisors. Foxtrot offers a multilevel service and fee structure to its clients. Brody posts a summary statement about her downgrade of Trek Chemicals on the firm's subscription website, which automatically emails clients about postings. She also emails higher-tiered clients a full detail report and invites them to participate in a conference call to discuss the rating. Did Brody violate the Standards of Professional Conduct with respect to fair dealing? No. Yes, because standard subscribers do not have equal access to the detailed report. Yes, because the Standards require that all clients are treated equally.

No.

Patrick Evans is a portfolio manager. He recently set up a website with a discussion forum that allows his clients to ask questions that can be answered by him, his assistant, or other clients who join the forum. Access to the forum is restricted to registered users, which are limited to Evans's clients with credentials provided by his assistant. In the invitation to the forum, Evans includes a description of the forum and cautions that other users can view public postings. One of his clients posted a question that included a copy of his recent statement. He was addressing Evans alone, but the post was viewable by all users. Evans had his assistant remove the post as soon as he spotted it. Did Evans violate the Standards of Professional Conduct? No. Yes, because he did not provide safeguards against the disclosure of confidential information. Yes, because he should have anticipated accidental disclosures and avoided them.

No.

Pablo Vega, CFA, a financial planner, recommends an annuity product from Rock Solid Insurance, which carries the highest credit rating by several bureaus. The product is structured to pay the higher of the return on the S&P 500 Index or 3%. In presenting the product to a client, Vega describes the minimum return as being "guaranteed by one of the most secure insurance companies in the industry." Did Vega violate the Standards of Professional Conduct by making such a claim? No. Yes, because no investment is without some risk. Yes, because guaranteeing returns is categorically prohibited. (Great question)

No. Standard I(C) Misrepresentation does not prohibit providing information on investment products that have guarantees built into the product structure or when an institution has agreed to cover any losses. The analyst should point out that the strength of the guarantee is limited by the continued financial strength of the insurance company.

Sergio Morales, CFA, believes he has found evidence that his supervisor is engaged in fraudulent activity involving a client's account. When Morales confronts his supervisor, he is told the client is fully aware of the issue. Later that day, Morales contacts the client and upon disclosing the fraudulent activity, is told by the client to mind his own business. Following the requirements of local law, Morales provides all of his evidence, along with copies of the client's most recent account statements, to a government whistle blower program. Has Morales most likely violated the CFA Institute Standards of Professional Conduct? No. Yes, concerning Duties to Employers. Yes, concerning Preservation of Confidentiality.

No. A is correct because Morales believes his supervisor and potentially the client are engaged in fraudulent activity and by following the requirements of local law, through their whistleblower program, he has not violated Standard III(E)-Preservation of Confidentiality or Standard (V)-Duties to Employers. B is incorrect because Morales has not violated Standard (V)-Duties to Employers. C is incorrect because Morales believes that his supervisor and potentially the client are engaged in fraudulent activity and by following the requirements of local law, through their whistleblower program, he has not violated Standard III(E)-Preservation of Confidentiality.

*** Got it from CFA Mock Exam: [I most likely drop what i got wrong] Agnes Trimbach, CFA, works at an investment firm that serves individual investors. Trimbach recommends the purchase of German government bonds to a client. She tells the client: "The government guarantees that you will receive the promised principal and interest on the bonds. In addition, interest rate fluctuations could add to your gains or cause losses." Has Trimbach most likely violated the Standards? No. Yes, the Standard relating to misrepresentation. Yes, the Standard relating to communication with clients and prospective clients. [Great question]

No. A is correct because Trimbach has not violated Standard I (C), Misrepresentation, which "does not prohibit members and candidates from providing clients with information on investment products that have guarantees built into the structure of the product itself or for which an institution has agreed to cover any losses." Here, Trimbach is simply stating that the government is guaranteeing the principal and interest, which is not a misrepresentation. Nor has Trimbach violated Standard V (B), Communication with Clients and Prospective Clients. Members are required to "distinguish between fact and opinion in the presentation of investment analyses and recommendations." Trimbach stated two facts (guaranteed principal and interest, as well as consequences of interest rate fluctuations) and did not represent an opinion as fact and therefore did not violate the Standard.

* Christina Ng, a Level I CFA candidate, defaulted on a bank loan she obtained to pay for her Master's degree tuition when her wedding cost more than expected. A micro finance loan company lent her money to pay off the tuition loan in full including penalties and interest. The micro finance loan company even extended further credit to pay for her parent's outstanding medical bills. Unfortunately, her parent's health problems escalated to the point where Ng had to take extensive time away from work to deal with the issues. She was subsequently fired and consequently defaulted on the second loan. As she was no longer employed, Ng decided to file for personal bankruptcy. Do the loan defaults leading up to Ng's bankruptcy most likely violate Standard I(D)-Misconduct? No. Yes, with regard to the first loan default. Yes, with regard to the second loan default.

No. A is correct because while Ng's first loan default, which played a part in the subsequent bankruptcy, is a result of poor financial choices (i.e., paying for higher wedding costs rather than her tuition loan), neither of the loan defaults or bankruptcy involves fraudulent or deceitful business conduct but are based on unfortunate personal circumstances. Therefore, she would most likely not be in violation of Standard I(D)-Misconduct.

* 18. Ward is scheduled to visit the corporate headquarters of Evans Industries. Ward expects to use the information he obtains there to complete his research report on Evans stock. Ward learns that Evans plans to pay all of Ward's expenses for the trip, including costs of meals, hotel room, and air transportation. Which of the following actions would be the best course for Ward to take under the Code and Standards? A. Accept the expense-paid trip and write an objective report. B. Pay for all travel expenses, including costs of meals and incidental items. C. Accept the expense-paid trip but disclose the value of the services accepted in the report.

Pay for all travel expenses, including costs of meals and incidental items. The correct answer is B. The best course of action under Standard I(B)-Independence and Objectivity is to avoid a conflict of interest whenever possible. Therefore, for Ward to pay for all his expenses is the correct answer. Answer C details a course of action in which the conflict would be disclosed, but the solution is not as appropriate as avoiding the conflict of interest. Answer A would not be the best course because it would not remove the appearance of a conflict of interest; even though the report would not be affected by the reimbursement of expenses, it could appear to be.

Pietro, president of Local Bank, has hired the bank's market maker, Vogt, to seek a merger partner. Local is currently listed on a stock exchange and has not reported that it is seeking strategic alternatives. Vogt has discussed the possibility of a merger with several firms, but they have all decided to wait until after the next period's financial data are available. The potential buyers believe the results will be worse than the results of prior periods and will allow them to pay less for Local Bank. Pietro wants to increase the likelihood of structuring a merger deal quickly. Which of the following actions would most likely be a violation of the Code and Standards? Pietro could instruct Local Bank to issue a press release announcing that it has retained Vogt to find a merger partner. Pietro could place a buy order for 2,000 shares (or four times the average weekly volume) through Vogt for his personal account. After confirming with Local's chief financial officer, Pietro could instruct Local to issue a press release reaffirming the firm's prior announced earnings guidance for the full fiscal year.

Pietro could place a buy order for 2,000 shares (or four times the average weekly volume) through Vogt for his personal account.

An investment management firm has been hired by ETV Corporation to work on an additional public offering for the company. The firm's brokerage unit now has a "sell" recommendation on ETV, but the head of the investment banking department has asked the head of the brokerage unit to change the recommendation from "sell" to "buy." According to the Standards, the head of the brokerage unit would be permitted to: Increase the recommendation by no more than one increment (in this case, to a "hold" recommendation). Place the company on a restricted list and give only factual information about the company. Assign a new analyst to decide if the stock deserves a higher rating.

Place the company on a restricted list and give only factual information about the company.

*** Alexandra Zagoreos, CFA, is the head of a government pension plan. Whenever Zagoreos hires a money management firm to work with the pension plan, she finalizes the deal over dinner at a nice restaurant. At these meals, Zagoreos also arranges for the money manager to provide her payments equal to 10% of the management fee the manager receives from the pension plan with no formal documentation of this agreement. Zagoreos keeps half of the payments for her own use and distributes the remainder as cash incentives to a handful of her most trusted staff. Zagoreos least likely violated which of the following CFA Institute Code of Ethics and Standards of Professional Conduct? Referral fees. Loyalty, Prudence and Care. Additional Compensation Arrangements. [I got it wrong, read it carefully!]

Referral fees. A is correct as the money should not be accepted without receiving written consent from all parties involved; therefore, Zagoreos is in violation of Standard IV(B)-Additional Compensation Arrangements. The manager has acted for her own benefit by receiving compensation that competes with or might reasonably be expected to create a conflict of interest with her employer's interest without receiving written consent from all parties involved. This action is a violation of Standard III(A)-Loyalty, Prudence, and Care, which requires that members act for the benefit of their clients, and places their client's interests before their employer's or their own interests. However, there is no indication that the member has received compensation, consideration, or benefit received from, or paid to, others for the recommendation of products or services and therefore has not violated Standard VI(C) related to referral fees.

*** Stafford is a portfolio manager for a specialized real estate mutual fund. Her firm clearly describes in the fund's prospectus its soft dollar policies. Stafford decides that entering the CFA Program will enhance her investment decision-making skill and decides to use the fund's soft dollar account to pay the registration and exam fees for the CFA Program. Which of the following statements is most likely correct? Stafford did not violate the Code and Standards because the prospectus informed investors of the fund's soft dollar policies. Stafford violated the Code and Standards because improving her investment skills is not a reasonable use of the soft dollar account. Stafford violated the Code and Standards because the CFA Program does not meet the definition of research allowed to be purchased with brokerage commissions. [Pay attention to the explanation why is this C not B]

Stafford violated the Code and Standards because the CFA Program does not meet the definition of research allowed to be purchased with brokerage commissions. Answer C is correct. According to Standard III(A)-Loyalty, Prudence, and Care, the CFA Program would be considered a personal or firm expense and should not be paid for with the fund's brokerage commissions. Soft dollar accounts should be used only to purchase research services that directly assist the investment manager in the investment decision-making process, not to assist the management of the firm or to further education. Thus, answer A is incorrect. Answer B is incorrect because the reasonableness of how the money is used is not an issue; the issue is that educational expense is not research.

*** Got it from CFA Mock Exam: [I most likely drop what i got wrong] Who is most likely responsible for claiming and maintaining compliance with the CFA Institute Global Investment Performance Standards (GIPS®)? The firm claiming compliance Independent verification firms The performance measurement department [I got it wrong]

The firm claiming compliance [I figured out after I see the answer. I'm stupid] A is correct. Firms that claim compliance with the GIPS standards are responsible for their claim of compliance and for maintaining that compliance.

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

Townsend did not violate the Code and Standards.

John Randall is a money manager with Insight Asset Managers (IAM). IAM sponsors luncheons for individual investors where firms present proposals to raise capital. A small-cap biotech firm, Diamond Diagnostics, presented a promising new technology that could drive the stock price up dramatically over the next year. Two of Randall's clients expressed interest in adding the stock to their portfolios. One client, Margret Burns, is a retiree living on a modest pension supplemented by a mainly income-producing portfolio. She is identified as risk-averse in her investment policy statement. The other, Richard Webber, is a wealthy entrepreneur with an aggressively invested portfolio and is identified as risk tolerant in his investment policy statement. Randall believes the upside potential for Diamond is genuine. To comply with the Code and Standards, Randall may make a recommendation to invest in this stock to: either Burns or Webber. Burns but not Webber. Webber but not Burns.

Webber but not Burns.

*** Jimmy Lan, CFA, is a technology analyst at Pacific Securities, Inc., and is a leading authority on Japanese technology companies. Lan's clients include many leading Japanese equity managers. While still employed at Pacific, Lan makes plans during weekends to start a new company, JL Consulting. His plans consist of contracting office space, interviewing potential employees, and purchasing office equipment. Once he feels ready to launch his new firm, Lan provides Pacific with his resignation notice. After leaving, Lan constructs earnings models of the technology companies he previously covered, using the knowledge and experience gained while at Pacific. He then contacts former clients by using public sources and encourages them to become clients of his new firm. Are Lan's actions in compliance with the Code and Standards? Yes, assuming he is not in breach of any non-compete agreement signed while at Pacific Securities. No, because he is prohibited from engaging in activities related to starting his new business while still employed by Pacific Securities. No, because the names of former clients, modeling skills and experience gained by Lan are confidential information of Pacific Securities.

Yes, assuming he is not in breach of any non-compete agreement signed while at Pacific Securities. A is correct because Lan's actions do not violate Standard IV(A)-Duties to Employers. Lan does not use company time to make arrangements for his new venture, nor does he misappropriate any information (financial models or client contacts) from his former employer. All of the actions performed by Lan are permissible under Standard IV(A).

Lisa Bloom is a portfolio manager for Lexmore Asset Management. Her neighbor is the popular founder and CEO of Magnus Industries. Bloom's portfolios own a significant number of shares in Magnus. At a neighborhood party, the CEO's wife mentioned her concern about her husband's failing health that will force him to retire very soon, well before expected. Bloom, concerned about the effect such an announcement will have on the stock price, sells all her portfolios' holdings in Magnus. Several weeks later, the dynamic founder's retirement is announced and the stock price drops dramatically. Blooms actions saved her clients' portfolios from a cumulative loss of several hundred thousand dollars. Did Bloom violate the Standards of Professional Conduct? No. Yes, because she breached a fiduciary duty to the CEO's wife. Yes, because she traded on material nonpublic information. (I got it wrong)

Yes, because she traded on material nonpublic information. The information obtained from Magnus' CEO's wife is material because it had the potential to change the price of the stock, and a reasonable investor would want to know it before investing. Therefore, Bloom may not trade on the information for herself or her clients.

*** Got it from CFA Mock Exam: [I most likely drop what i got wrong] Peter Chang, CFA, spreads rumors on social media about a potential acquisition of Advanced Electronics Company (AEC) after buying the stock for his personal account. Despite the rumors, AEC's stock price declines and Chang closes his position at a significant loss. Has Chang violated the Standards? No Yes, the Standard relating to market manipulation only Yes, both the Standard relating to market manipulation and the Standard relating to misconduct [I got it wrong]

Yes, both the Standard relating to market manipulation and the Standard relating to misconduct [I got wrong on Misconduct part] C is correct because according to Standard II(B), Market Manipulation, "[i]nformation-based manipulation includes, but is not limited to, spreading false rumors to induce trading by others. For example, members and candidates must refrain from "pumping up" the price of an investment by issuing misleading positive information or overly optimistic projections of a security's worth only to later "dump" the investment (i.e., sell it) once the price, fueled by the misleading information's effect on other market participants, reaches an artificially high level." Chang spreads rumors on social media about a potential acquisition of AEC after buying the stock for his personal account. Therefore, Chang has violated the Standard II(B), Market Manipulation. In addition, Standard I(D), Misconduct, "addresses all conduct that reflects poorly on the professional integrity, good reputation, or competence of members and candidates. Any act that involves lying, cheating, stealing, or other dishonest conduct is a violation of this standard if the offense reflects adversely on a member's or candidate's professional activities." Spreading rumors on social media to push up the stock price reflects poorly on Chang's professional integrity. Therefore, Chang has violated the Standard I(D), Misconduct.

Monica Stetz is an investment analyst with Kline & Powers, a small advisory firm consisting of the president, CFO, and Stetz. Her personal portfolio includes shares in Petwise, Inc. The president informs her that Kline will initiate coverage on Petwise and asks her to write a research report on the stock. After disclosing her ownership to the president, she is instructed to sell her shares immediately to remove the conflict and then write the report. Stetz sells her shares and subsequently initiates coverage of Petwise with an unqualified sell recommendation. Did Stetz violate the Standards of Professional Conduct? No. Yes, by initiating coverage with a sell recommendation. Yes, by creating the appearance of a conflict of interest. (I got it wrong)

Yes, by creating the appearance of a conflict of interest.

Steve Wilcox, CFA, is a senior portfolio manager with Capital Alpha Managers (CAM) and former professional baseball player. He heard through an acquaintance that the Nash Foundation for the Arts is looking for an asset manager to handle the emerging markets segment of its $800 million portfolio. Wilcox attends a series of arts gala in search of Tom Boskin, the current chairman of the foundation. After ingratiating himself to Boskin at an event, Wilcox begins inviting him to exclusive sporting events, elaborate dinners with current and former athletes, and recreation on his boat. Wilcox pays for all the expenses, reminding Boskin about CAM's ability to manage the foundation's emerging markets investments. In the end, the foundation chose another firm, and Wilcox stopped inviting Boskin. Did Wilcox violate the Standards of Professional Conduct? Yes. No, because CAM did not win the contract. No, because Boskin did not solicit the invitations from Wilcox. (Great question)

Yes. Standard I(B) Independence and Objectivity indicates that members and Candidates must not offer or accept a benefit in an attempt to sway an opinion. This Standard prohibits the use of gifting to sway the decisions of those making hiring decisions. Wilcox's actions imply that he was attempting to influence Boskin by gifting activities and events. Just because Wilcox's attempts were unsuccessful does not excuse him from that activity.

*** Got it from CFA Mock Exam: [I most likely drop what i got wrong] With respect to issuer-paid research, members are not required to: strictly limit the type of compensation they accept from the covered company. fully disclose the nature of compensation received from the covered company. accept compensation related only to the investment performance of the covered company. [I got it wrong]

accept compensation related only to investment performance of the covered company. C is correct because according to Standard I (B), Independence and Objectivity, "independent analysts must also strictly limit the type of compensation that they accept for conducting issuer-paid research. Otherwise, the content and conclusions of the reports could reasonably be expected to be determined or affected by compensation from the sponsoring companies. Compensation that might influence the research report could be direct, such as payment based on the conclusions of the report, or indirect, such as stock warrants or other equity instruments that could increase in value on the basis of positive coverage in the report. In such instances, the independent analyst has an incentive to avoid including negative information or making negative conclusions."

*** Rodney Rodrigues, CFA, is responsible for identifying professionals to manage specific asset classes for his firm. In selecting external advisers or subadvisers, Rodrigues reviews the adviser's investment process, established code of ethics, the quality of the published return information, and the compliance and integrated control framework of the organization. In completing his review, Rodrigues most likely violated the CFA Institute Standards of Professional Conduct with regards to his due diligence on: adherence to strategy. performance measures. internal control procedures.

adherence to strategy. A is correct because Standard V(A)-Diligence and Reasonable Basis applies to the level of review necessary in selecting an external adviser or subadviser and would at minimum include reviewing the adviser's adherence to its stated strategy.

Martin Wagner is an associate analyst at Kinder & Wexler. He is part of a research team preparing a report on Axle Industries. After analyzing all the relevant information, Wagner feels that the team should issue a sell recommendation. However, the other two members of his team are less pessimistic about the stock's prospects and complete the report with a hold recommendation. The firm's equity research committee reviews the report and supports the hold rating. Wagner's best course of action is to: refuse to put his name on the report until the rating is changed to sell. insist that his dissenting opinion be added to the report before publication. allow his name on the report after noting his dissenting opinion in the working papers.

allow his name on the report after noting his dissenting opinion in the working papers. When part of a group or team, members may dissent from the group's opinion without removing themselves from the report as long as the process that the team used is fair and objective. The Standard recognizes that diligent analyses can produce alternative conclusions. The best practice is to document Wagner's dissent in the working papers but not necessarily in the report.

************* Henrietta Huerta, CFA, writes a weekly investment newsletter to market her services and obtain new asset management clients. A third party distributes the free newsletter on her behalf to those individuals on its mailing list. As a result, it is widely read by thousands of individual investors. The newsletter recommendations reflect most of Huerta's investment actions. After completing further research on East-West Coffee Roasters, Huerta decides to change her initial buy recommendation to a sell. To avoid violating the CFA Institute Standards of Professional Conduct it would be most appropriate for Huerta to distribute the new investment recommendation to: newsletter recipients first. asset management clients first. newsletter recipients and asset management clients simultaneously. (Great question) [I got it wrong the second time]

asset management clients first. B is correct because according to Standard III(A)-Loyalty, Prudence, and Care, members and candidates must place their clients' interests first before their own interests. The temptation may be to release the changed recommendation to newsletter recipients simultaneously with or even before the asset management clients to try to obtain new clients. However, to avoid violating Standard III(A)-Loyalty, Prudence, and Care, Huerta must ensure that any change in an investment recommendation is first distributed to her asset management clients before any newsletter recipients, who are not necessarily clients (that is, they receive the newsletter for free from a third party distribution list).

*** Got it from CFA Mock Exam: [I most likely drop what i got wrong] un Hae, CFA, is a portfolio manager at Citadel Capital (CC). Hae's brother maintains a fee-paying retirement account at CC. Hae has no beneficial ownership in her brother's account. Whenever an IPO becomes available that is suitable for her clients, Hae first allocates shares to other clients before placing any remaining shares in her brother's account. She adopts this procedure to avoid potential conflicts of interest. Hae's actions violate the Standard(s) relating: only to fair dealing. only to priority of transactions. both to fair dealing and to priority of transactions. [I got it wrong]

both to fair dealing and to priority of transactions. [I forgot it's only the immediate family, I guess brothers and sisters don't count] C is correct because Standard VI(B), Priority of Transactions states that "[i]nvestment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner" and "[f]amily 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." So, Hae's actions are not consistent with this Standard. In addition, Hae's actions are not consistent with Standard III(B), Fair Dealing which states that "[m]embers 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." Further, "[i]f the investment professional's family-member accounts are managed similarly to the accounts of other clients of the firm, however, the family-member accounts should not be excluded from buying such shares." So, Hae's actions are not consistent with this Standard as well.

*** Got it from CFA Mock Exam: [I most likely drop what i got wrong] Claus Holm, CFA, directs most of his clients' trades to RRT Company (RRT), despite RRT's higher-than-average commissions. In return, RRT refers individual clients to Holm for asset management services. Holm does not disclose the arrangement to his clients or prospective clients. Holm has most likely violated the Standard(s) relating: only to referral fees. only to loyalty, prudence, and care. both to referral fees and to loyalty, prudence, and care.

both to referral fees and to loyalty, prudence, and care. C is correct because according to Standard III (A), Loyalty, Prudence and Care, "Conflicts may arise when an investment manager uses client brokerage to purchase research services, a practice commonly called 'soft dollars' or 'soft commissions.' A member or candidate who pays a higher brokerage commission than he or she would normally pay to allow for the purchase of goods or services, without corresponding benefit to the client, violates the duty of loyalty to the client." Paying higher fees in return for referrals does not represent a corresponding benefit to Holm's clients. Therefore, this arrangement violates the duty of loyalty to his clients. In addition, Holm has violated Standard VI (C), Referral Fees, which states "the responsibility of members and candidates to inform their employer, clients, and prospective clients of any benefit received for referrals of customers and clients."

*** Hammi Holmberg is enrolled to take the Level I CFA examination. While taking the CFA examination, the candidate on Holmberg's immediate right takes a stretch break and a piece of paper from his pocket falls onto Holmberg's desk. Holmberg glances at the paper and realizes there is information written on the paper, which includes a formula Holmberg needs for the question she is working on. Holmberg had not memorized this formula and could not complete the question without this information. Holmberg pushes the paper off her desk and uses the formula to complete the question. According to the CFA Institute Code of Ethics and Standards of Professional Conduct, Holmberg most likely: compromised her exam. was free to act on the information that fell on her desk. is responsible for notifying exam proctors of her neighbor's violation.

compromised her exam.

Roger Hamlet works at the trading desk of Tradex, a firm that provides clearing services to small brokerage firms. Hamlet receives notification from the designated person at CFA Institute's Professional Conduct Program (PCP) that one of his clients, Jack Russell, has been accused of churning accounts in order to generate excessive fees. The notice requests that Hamlet provide Russell's trading records to the investigation. Hamlet's best course of action is to: refuse to provide records to the PCP. alert other clients to the accusations. cooperate with the PCP investigation.

cooperate with the PCP investigation.

Philip Marit, CFA, is a new analyst with Alpha Advisors. He has been hired to follow the computer industry, replacing Nancy Engle, who was promoted to the head of research at the firm. Engle has placed a "buy" recommendation on Dull Computers for the last year, which has performed well. Because of her success with the stock, Engle instructed Marit not to change the rating under any circumstances. Marit's best course of action is to: maintain the "buy" rating as instructed. include Engle's name on the future "buy" recommendations. decline to use his name on recommendations on Dull that were not reached through appropriate analysis. (I'm not quite sure if this is a good question since the choices are to include his name or not)(I got it wrong)

decline to use his name on recommendations on Dull that were not reached through appropriate analysis. Marit must have a reasonable basis, supported by appropriate analysis, for his investment recommendations. In addition, his employment situation should not compromise his independence and objectivity, although other members of his research team are compromised. Therefore, his best course of action is to refuse to adhere his name to an analysis he feels was not reached through objective methods.

*** Got it from CFA Mock Exam: [I most likely drop what i got wrong] According to the Standard relating to fair dealing, when members disseminate investment recommendations, they are most likely required to make every effort to treat individual clients in a(n): fair and equal manner. fair and impartial manner. equal and impartial manner. [I got it wrong]

fair and impartial manner. [My mistake is that I know this, but I got confused since it's a different way to ask] [We treat all fair, but we don't have to treat them equally since there can be different tiers of clients] B is correct because according to Standard III (B), Fair Dealing, "[m]embers and candidates must make every effort to treat all individual and institutional clients in a fair and impartial manner." Additionally, "[t]he term 'fairly' implies that the member or candidate must take care not to discriminate against any clients when disseminating investment recommendations or taking investment action. Standard III(B) does not state 'equally' because members and candidates could not possibly reach all clients at exactly the same time..."

*** Got it from CFA Mock Exam: [I most likely drop what i got wrong] A 12-year old investment firm adopts the GIPS standards. To claim compliance with the GIPS standards, the firm is initially required to present GIPS-compliant performance history: for at least five years. for at least ten years. since the firm's inception date. [I got it wrong]

for at least five years. A is correct because according to GIPS, "A firm is required to initially present, at a minimum, five years of annual investment performance that is compliant with the GIPS standards. If the firm or the composite has been in existence less than five years, the firm must present performance since the firm's inception or the composite inception date."

Bill Parker developed a stock-picking model and back-tested it using historical data from 20X1 to 20X6. The model produced a 40% average annual return over the testing period. After using the model to manage his personal portfolio in 20X7, it realized an annual return of 36%. In a marketing brochure, Parker describes the model as "a reliable system that has yielded average returns in excess of 35% per year over the last seven years." To avoid violating Standards I (C): Misrepresentation and III (D): Performance Presentation, Parker must disclose that the performance record: includes trading his personal portfolio. includes simulated results. is unlikely to be repeated. (I got it wrong)

includes simulated results. To avoid misrepresentation and meet the minimum requirements for performance presentation, Parker must disclose that the average annual return includes only one period of actual data and the years for which simulated results have been used. Members or candidates must not state or imply that past returns can be repeated, but disclosures on that are recommended rather than required. Further, Parker should but is not required to disclose that this portfolio involves proprietary assets.

Shannon Waxman is the director of research for a large investment company. She is an avid reader of online investment research and commentary. When she posts comments to other authors' articles, she does so under her anonymous username, "InvestrCFA." When she writes articles for her company blog, she posts under her real name, "Shannon Waxman, CFA." According to the Standards of Professional Conduct, Waxman violated the Standards by: posting comments to others' work anonymously. incorporating "CFA" into her anonymous username. including the CFA designation in her own blog articles. (Wiley Ends here for now)

incorporating "CFA" into her anonymous username.

*** Got it from CFA Mock Exam: [I most likely drop what i got wrong] A firm claiming compliance with the GIPS standards: can claim compliance on specific composites. is responsible for maintaining that compliance. must have the verification of its claim of compliance performed by an independent third party. [I got it wrong]

is responsible for maintaining that compliance. B is correct because according to GIPS standards, "Firms that claim compliance with the GIPS standards are responsible for their claim of compliance and for maintaining that compliance."

Hugo Sanchet, CFA, is the chief marketing officer for Orion Investments. Orion manages several funds, which have all underperformed their benchmarks over the last five-year horizon. The benchmark indices have all had positive returns in each of the last five years. Sanchet approved an advertisement that stated, "Orion's clients have prospered under our careful management. Thanks to the Orion Method, none of our investors has lost money in any of the last five years." According to the Standards of Professional Conduct, Sanchet has: misrepresented his clients' experience over the past five years. misrepresented his firm's skill over the past five years. shrewdly, but accurately, described his firm's performance.

misrepresented his firm's skill over the past five years. While the description of his clients' experience might be accurate from a factual perspective, claiming that the Orion Method was responsible for client's not losing money rather than the benchmark is a misrepresentation of the firm's skill. Approving such a misleading advertisement would be a violation of Standard I(C).

*** Got it from CFA Mock Exam: [I most likely drop what i got wrong] Jonas Balsys, CFA, has a prospective client, Edith Clancy, who mentions that she donates to environmental causes. Balsys mentions Clancy to a friend who works for an environmental agency. The next week, Balsys prepares an IPS for Clancy. Clancy does not disclose information about assets outside of her ESG investments. Balsys prepares the IPS based on the partial information provided by Clancy and enters into a formal agreement with her. Balsys has most likely violated the Standard relating to: suitability. preservation of confidentiality. diligence and reasonable basis. [I got it wrong]

preservation of confidentiality. [same bad habits, I didn't read the question carefully] B is correct because according to Standard III (E), Preservation of Confidentiality, "members and candidates preserve the confidentiality of information communicated to them by their clients, prospective clients, and former clients." A is incorrect because according to Standard III (C), "If clients withhold information about their financial portfolios, the suitability analysis conducted by members and candidates cannot be expected to be complete; it must be based on the information provided." C is incorrect because Standard V (A), Diligence and Reasonable Basis, requires to "Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions."

Pedro Martinez is a portfolio manager with Sol Bank. The bank offers asset management services and proprietary products to institutional clients. Martinez occasionally attends meetings to support the sales team with technical expertise. His bonus is, in part, determined by the success of these sales meetings. In addition, he receives a commission on each sale of the bank's proprietary products. According to the Standards of Professional Conduct, Martinez must disclose the additional compensation he receives from: sales meetings but not proprietary products. proprietary products but not sales meetings. both sales meetings and proprietary products.

proprietary products but not sales meetings. Guidance to The Standards indicate that disclosures should be made to clients regarding fee arrangements, subadvisory agreements, or other situations involving nonstandard fee structures. If there is the potential for apparent or actual conflict of interest, these fee arrangements must be disclosed. Martinez need not disclose the compensation arrangement involving the sales meetings. It may be assumed that his involvement is part of a sales effort for which he might be compensated.

************* Danielle Deschutes, CFA, is a portfolio manager who is part of a 10-person team that manages equity portfolios for institutional clients. A competing firm, South West Managers, asks Deschutes to interview for a position within its firm and to bring her performance history to the interview. Deschutes receives written permission from her current employer to bring the performance history of the stock portfolio with her. At the interview, she discloses that the performance numbers represent the work of her team and describes the role of each member. To bolster her credibility, Deschutes also provides the names of institutional clients and related assets constituting the portfolio. During her interview Deschutes most likely violated the CFA Institute Standards of Professional Conduct with regards to: A. the stock portfolio's performance history. B. her contribution to the portfolio's returns. C. providing details of the institutional clients. (Great question)

providing details of the institutional clients. C is correct because Deschutes most likely violated Standard III(E)-Preservation of Confidentiality by failing to preserve the confidentiality of client records when she disclosed specific details about clients in the equity portfolio. A is incorrect because Standard III(D)-Performance Presentation does not prohibit showing past performance of funds managed at a prior firm as part of a performance track record as long as showing that record is accompanied by appropriate disclosures about where the performance took place and the person's specific role in achieving that performance, which has been done in this case. B is incorrect because the specific role the portfolio manager played in achieving the performance and the portion of the return that she was directly responsible for should be disclosed as required by Standard III(D)-Performance Presentation. Deschutes explains that the performance was a team effort and there is no indication she tried to exaggerate her role in obtaining the performance nor did she specifically state a return she was directly responsible for which would be difficult to determine as a member of a team.

Selma Lopez was an investment banker with Southern Trust. During the course of employment, she worked very closely with financial officers at local firms. Southern required all investment bankers to sign a one-year noncompete agreement that prohibits soliciting existing clients after leaving the firm. Lopez recently left Southern to join Eastern Bank. Her attorney advises that such noncompete agreements are legally unenforceable in her jurisdiction. According to the Standards of Professional Conduct, Lopez may: solicit former clients through publicly available information. only solicit business from former clients who contact her. not solicit any former clients for at least one year. (I got it wrong)

solicit former clients through publicly available information. Standard IV (A): Loyalty allows solicitation of former clients as long as contact information does not come from a former employer's records or violate an applicable noncompete agreement. Because the noncompete agreement has been deemed unenforceable, it is no longer applicable.

*** Got it from CFA Mock Exam: [I most likely drop what i got wrong] A member works in a country where there is no regulation relating to investment performance standards. In the absence of any regulatory guidance, the member is required to communicate investment performance information to her clients in accordance with: the GIPS standards. the Code and Standards. stricter of the GIPS standards and the Code and Standards. [They were playing games on me, I got it right tho]

stricter of the GIPS standards and the Code and Standards. [My point here is the GIPS, read over the explanation] B is correct because Standard III(D), Performance Presentation, "[f]or members and candidates who are showing the performance history of the assets they manage, compliance with the GIPS standards is the best method to meet their obligations under Standard III(D). Members and candidates should encourage their firms to comply with the GIPS standards." Clearly then, Standard III(D) does not require a member to comply with the GIPS standards; complying with the GIPS Standards is only encouraged. Also, according to Standard I(A), Knowledge of the Law, "Members and Candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities." Therefore, the member must communicate investment performance information to her clients in accordance with the Code and Standards, especially Standard III(D). If the country where the member works were to have a regulation relating to investment performance standards, the member would be required to follow the stricter of the Standards and the local regulation. A is incorrect because "[c]omplying with the GIPS standards is voluntary. Compliance with the GIPS standards is not typically required by legal or regulatory authorities." Therefore, the member is not required to communicate investment performance information to her clients in accordance with the GIPS standards.

Roger Parks is an analyst with Delta Partners, a large firm offering sell-side research and investment banking services. In lieu of certain fees, the firm often accepts stock options on the firms it underwrites. As a partner of the firm, Parks is eligible for an allocation of those options to his personal account. The general partner called Parks to remind him that Delta's options in Interworks will expire in a few weeks and suggests that he write a research report highlighting the stock's upside potential. According to the Standards of Professional Conduct, Parks may: not write the report due to the conflict of interest. write the report if he discloses the firm's investment banking relationship. write the report if he discloses details of both his and the firm's option holdings.

write the report if he discloses details of both his and the firm's option holdings. Parks has a conflict with respect to his firm's interest and his personal interest in Interworks. The Standard does not prohibit him from writing the report, but he is required to disclose both conflicts in it.