Ethics
Which of the following is least likely to assist CFA Institute members in meeting their duty of loyalty to their employer under the Code and Standards?
A member working an additional job that utilizes their professional skill and experience.
T/F: CFA Institute members are expected to have detailed, "expert-level" knowledge of the laws that govern their professional conduct.
False
T/F: Whether or not conduct is legal is the determining standard of whether actions are considered misconduct under CFA Institute Standard I(D): Misconduct
False
The Code and Standards require that those with supervisory responsibility make reasonable efforts to prevent and detect violations by ensuring that an effective compliance system is designed to anticipate every potential violation.
False
T/F: CFA Institute Standard IV(A): Loyalty (to Employers) prohibits a member from engaging in additional outside work for compensation in competition with their employer.
False
T/F: CFA Institute Standard IV(A): Loyalty (to Employers) prohibits members from engaging in outside activities for compensation that do not conflict with the services provided by their employer.
False
Daniel, a portfolio manager and CFA charterholder, purchases a house from Alysha, a work colleague and CFA charterholder. After six months, Daniel becomes aware of a number of significant long-term maintenance issues with the house. Daniel believes Alysha was deceitful in the disclosures about the house and in the terms of sale. Daniel files a complaint with CFA Institute about Alysha's supposedly deceitful conduct. Who is in violation of CFA Institute Standard I(D): Misconduct?
Daniel.
Which of the following is most likely to violate CFA Institute Standard I(D): Misconduct?
Fraudulently filing personal income tax returns
Which of the following actions is least likely to violate CFA Institute Standard I(D): Misconduct?
Repeatedly being delinquent in making child support payments
In the context of Standard I(A): Knowledge of the Law, "applicable law" is defined as which of the following:
The law that governs a CFA Institute member's conduct
T/F: CFA Institute Standard I(D): Misconduct makes it clear that all conduct that reflects poorly on the professional integrity, good reputation, or competence of CFA Institute members is prohibited.
True
T/F: CFA Institute members are always subject to the Code and Standards when engaging in their professional activities.
True
Vassily received a year-end gift of a set of new golf clubs from a client who was delighted by the performance of her portfolio, which is managed by Vassily. Vassily may do all of the following EXCEPT:
accept the gift, keeping the matter confidential
Supervisors should implement incentive systems that:
are firmly tied to client interests and how outcomes are achieved.
CFA Institute Standard IV(A): Loyalty (to Employers) allows former employees to contact clients of their previous firm:
as long as there is no specific agreement with the former employer not to do so.
A CFA Institute member most likely complies with Standard IV(C): Responsibilities of Supervisors if the member:
brings an inadequate compliance system to the attention of the firm's senior managers and recommends corrective action
Which of the following statements is least likely to violate the Code and Standards? Investment advisers holding the CFA designation:
commit to a thorough and rigorous code of ethics
Once a supervisor learns that an employee has violated or may have violated the law or the Code and Standards, the most effective course of action is to:
initiate a thorough investigation of the activities to determine the scope of the wrongdoing.
Under the Code and Standards, investment professionals with oversight responsibilities for large numbers of employees:
may delegate that authority to others.
Bojing is an investment adviser who operates as a sole proprietor and has five clients. If Bojing obtains employment with a brokerage firm, he
must get written consent from his new employer to keep his old clients and must advise his old clients in writing of his employment with the brokerage firm.
Standard IV(C): Responsibilities of Supervisors requires that those with supervisory responsibility do all of the following EXCEPT:
understand generally what constitutes an adequate compliance system
CFA Institute Standard IV(A): Loyalty (to Employers) requires CFA Institute members to protect the interests of their firm by: I. refraining from any conduct that would injure the firm. II. refraining from any conduct that would deprive the firm of the members' skills and ability. III. subordinating personal interests to firm interests.
I and II.
In the context of the CFA Institute Standard I(A): Knowledge of the Law, the "more strict" law or regulation: I. imposes greater restrictions on your actions. II. requires a greater degree of action to protect the interests of investors. III. is subject to the greater penalty when the law is violated
I and II.
Standard IV(B): Additional Compensations Arrangements requires CFA Institute members to receive permission from their employer to receive compensation from third parties for the same services the members provide to their employer because such compensation may: I. affect a member's loyalty and objectivity. II. create potential conflicts of interests. III. affect the employer's compensation and incentive structure.
I and II.
Which of the following statements by a CFA Program candidate most likely violates the Code and Standards?
I obtained my CFA Charter in only three years, giving me superior knowledge over those charterholders who failed one or more exams on their first try
A CFA Program candidate most likely violates the Code and Standards by disclosing: I. details of questions on the CFA Exam. II. broad topical areas NOT tested on the CFA Exam. III. formulas tested on the CFA Exam.
I, II, and III
If a CFA Institute member believes that the activity of his coworkers is unethical or in violation of the Code and Standards, the member should consider undertaking which of the following: I. Attempt to stop the behavior by discussing the matter with the person engaging in the unethical conduct. II. Attempt to stop the behavior by bringing it to the attention of his employer. III. Dissociate from the behavior by resigning, if necessary.
I, II, and III
Once granted the right to use the CFA designation, individuals are required to do which of the following to maintain their right use the designation? I. Maintain membership in CFA Institute. II. Pay dues to CFA Institute. III. Identify themselves as charterholders publicly using the registered trademark "Chartered Financial Analyst."
I, II, and III
Under the Code and Standards, once a supervisor has conducted an investigation of potential employee misconduct, the BEST course of action is to: I. increase supervision or place appropriate limitations on the wrongdoer. II. sanction those guilty of misconduct. III. review procedures for potential changes necessary to prevent future violations from occurring.
I, II, and III
Action(s) that CFA Institute members with supervisory responsibilities are expected to perform include which of the following? I. Promoting compliance with laws, regulations, and the Code and Standards. II. Creating policies to detect violations of laws, regulations, and the Code and Standards III. Recommending incentive structures that reward ethical conduct
I, II, and III.
CFA Institute Standard I(D): Misconduct prohibits any act that would reflect adversely on a member's: I. professional reputation. II. integrity .III. competence.
I, II, and III.
Under the Code and Standards, if you plan to engage in outside work for compensation independent of the work for your employer, you must: I. describe to your employer the types of services you will render. II. describe to your employer the compensation you expect to receive for the services. III. obtain consent from your employer.
I, II, and III.
T/F: CFA Institute members may only accept gifts, benefits, compensation, or consideration that competes with or might reasonably be expected to create a conflict of interest with the employer's interest if they obtain written consent from all parties involved.
True
T/F: Under the Code and Standards, CFA Institute members must not contact existing clients or potential clients prior to leaving an employer for the purposes of soliciting their business for the new employer.
True
T/F: Under the Code and Standards, supervisors must design compliance programs that are appropriate for the size and nature of the organization.
True
Which statement is NOT part of CFA Institute Standard I(A): Knowledge of the Law? CFA Institute members must:
report violations of the law by their colleagues to CFA Institute
T/F: A supervisor is in violation of CFA Institute Standard IV(C): Responsibilities of Supervisors if they do not detect ethical or regulatory violations of their subordinates, even if the supervisor has adopted reasonable procedures and taken steps to institute an effective compliance program.
False
T/F: CFA Institute Standard I(D): Misconduct is meant to prohibit dishonest, fraudulent, or deceitful personal conduct that is unrelated to a CFA Institute member's professional responsibilities
False
T/F: CFA Institute Standard IV(A): Loyalty (to Employers) requires CFA Institute members to place employer interests before personal and client interests
False
T/F: CFA Institute members may engage in conduct that is legal but that violates the Code and Standards.
False
T/F: Under the Code and Standards, a departing employee is generally free to make arrangements or preparations to go into a competitive business only after terminating the relationship with his or her employer, so as not to violate the employee's duty of loyalty.
False
Which of the following is NOT a practice designed to dissociate from the illegal or unethical activity of a colleague
Assuming the conduct will be addressed by a supervisor or their employer's compliance department
T/F: Under the Code and Standards, if a client wants to pay you a bonus over and above your salary from your employer for managing their assets, you may accept it regardless of whether your employer approves
False
Which one of the following statements is false?
Members must comply with the Code and Standards even when doing so would conflict with applicable law
According to the Code and Standards, CFA Program candidates are: A. prohibited from discussing all information about the CFA Exam with other candidates. B. required to report any such discussions to CFA Institute.
Neither A or B
Dan and Aaron are both registered for the next offering of the Level III CFA Exam. Dan circulates a résumé stating that he is a candidate for the CFA designation and has passed Level II of the CFA Program. Aaron circulates a résumé stating that he is a CFA II. Which of the following statements is correct?
Only Aaron has violated the Code and Standards
Which of the following actions is least likely to violate the Code and Standards?
Posting derogatory comments regarding the CFA Program on a website for CFA Program candidates.
Kayla, a portfolio manager for Woodbridge Investments, handles the account of Zara, a client of the firm. Zara wants to pay Kayla a $100,000 bonus over and above her compensation from Woodbridge Investments if Kayla achieves an 18% annual return on Zara's account. To comply with the Code and Standards, Kayla:
can accept this offer as long as she discloses the arrangement to her employer and receives its permission to accept the bonus
The BEST course of action for a CFA Institute member when exercising supervisory authority is to adopt a code of ethics that:
consists of fundamental, principle-based ethical concepts that are applicable to the firm's employees
A CFA Program candidate is most likely to violate the Code and Standards if the candidate:
discusses test questions with other candidates after the CFA Exam
If a CFA Institute member has reasonable grounds to believe that imminent or ongoing activity by his or her clients or colleagues is illegal or unethical, CFA Institute Standard I(A): Knowledge of the Law requires the member to:
dissociate, or separate, from the activity.
Alice suffers from significant health issues that result in substantial medical bills. These expenses, combined with overwhelming debt from college and graduate school, force Alice to file for personal bankruptcy. Alice's actions:
does not violate CFA Institute Standard I(D): Misconduct
