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Members and candidates who are in advisory relationships with clients should document unsuccessful attempts to update client information and circumstances. Because risk is to be evaluated in a portfolio context, there is no prohibition against the purchase of a security that is risky on a stand-alone basis, as long as the risk of the clients overall portfolio is consistent with their ability and willingness to assume investment risk. While lack of client information could make suitability a difficult question, Standard III(C) Suitability does not prohibit managing assets for clients who withhold information about their financial circumstances and needs.
Which of the following actions is least likely a violation of the Standard concerning conduct as participants in CFA Institute programs?
A member anonymously posts a disparaging comment about CFA Institute policies on an internet message board.
With respect to a client's confidential information, if a member or candidate believes a client is engaging in illegal activity, the member should most appropriately:
seek advice from his firm’s legal counsel or compliance department.
Telling potential investors that a short-term U.S. Treasury fund contains "guaranteed" securities :
does not violate any Standard.
Do Sergeant's actions violate CFA Institute Standards of Professional Conduct?
Yes, because Sergeant did not disclose the nature of his arrangement with Chapman to his client.
Jimmy Deininger, CFA, manages several client portfolios. One of his clients offers him use of a cabin in a vacation spot because the client's investment results under Deininger's management have exceeded the client's goals. Deininger discloses the gift to his employer. With reference to the Standards of Practice, Deininger:
has complied with the Standards and may accept the gift.
A professional organization most appropriately enforces upon its members:
ethical standards only.
A portfolio manager of a city's police pension fund owes his duty of loyalty to the:
Which of the following statements about the nine major sections of GIPS is least accurate? The major section on:
derivatives addresses which valuation methods are appropriate for custom instruments and thinly traded contracts.
Roger Smith, CFA, has been invited to join a group of analysts in touring the riverboats of River Casino Corp. For the tour, River Casino has arranged chartered flights from casino to casino since commercial flight schedules are not practical for the group’s time schedule. River Casino has also arranged to pay for the analysts’ lodging for the three nights of the tour. According to CFA Institute Standards of Professional Conduct, Smith:
may accept the arrangements as they are.
Riley and Smith, a broker-dealer, is bringing to market a secondary offering for All Pro Company. One of the reasons All Pro selected the firm to lead the offering is because Riley and Smith has been a market maker for All Pro's stock for the past five years. The firm is in possession of material nonpublic information relevant to All Pro's offering. To be in compliance with the Code and Standards, Riley and Smith:
should continue to serve as market maker but take only the contra side of unsolicited customer trades.
Phil Jones, CFA, has just finished researching Alpha One Inc. and is about to issue an unfavorable report on the company. His manager does not want him to state any adverse opinions about Alpha One, as it could adversely affect their firm’s relations with the company, which is an important investment banking client. Which of the following actions by the manager most likely violates Standard I (B): Independence and Objectivity?
Asking Jones to issue a favorable report
William Rex, CFA, has a one-man firm that manages investment portfolios. In his marketing materials, Rex presents the asset-weighted returns for accounts he has managed over the last five years and does not disclose that the first two years of his performance history were achieved at a previous firm. He also includes simulated results of a stock selection model he employs and indicates that they are from a simulation. Has Rex violated any CFA Institute Standards of Professional Conduct?
Yes, failing to disclose that two years of his performance results were with a previous employer is a violation, but including the simulated results is acceptable.
Which of the following statements is most accurate regarding the GIPS requirement for definition of the firm?
The firm must be the distinct business entity held out to clients.
Susan Smart, CFA, is about to change her “buy” recommendation on RollinsCo to “sell.” RollinsCo had been growing rapidly over the past year, but Smart believes the growth potential is now gone. Smart sells the shares held in her discretionary client accounts and in her own personal account before issuing her report. According to the Standards that concern fair dealing and priority of transactions, Smart violated:
both of these Standards.