To comply with Standard III (E): Preservation of Confidentiality, members must preserve the confidentiality of information communicated to them by:

A Past, current, and prospective clients.

explanation

Standard III (E) requires that members maintain the confidentiality of all information passed on to them by past, current, and prospective clients.

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Under the mosaic theory an analyst can most likely use:

Material public information and non‐material, non‐public information.

According to Standard II (A): Material, Non‐public Information, an analyst may use material public information as well as non‐material, non‐public information in her analysis.

Martha Graham, CFA, is a portfolio manager. She is very bullish on the stock of ABC Ltd. She adds the stock to all portfolios under her management such that the stock comprises 10% of each portfolio. Graham is most likely in violation of:

Standard III (C): Suitability.

Graham purchases the stock for all her clients without thinking about the suitability of the investment for each individual client’s portfolio.

An analyst is flown along with a group of peers to a company’s mining facilities on a chartered flight, and put up in a hotel for three days. In determining whether these arrangements violate Standard I (B): Independence and Objectivity, the analyst must consider:

Whether she can remain objective and whether her integrity might be perceived by her clients to have been compromised.

In the final analysis, analysts must consider both, whether they remain objective and whether their integrity might be perceived by clients to have been compromised in evaluating whether such arrangements are acceptable.

According to the Standard related to loyalty, prudence, and care, which of the following statements regarding the voting of proxies on client holdings is least accurate?

An investment management firm should vote all proxies on client holdings unless the client reserves that right.

Standard 111(A) Loyalty, Prudence, and Care does not require the voting of all proxies. A cost-benefit analysis may support the conclusion that the voting of all proxies is not beneficial to the client in light of the time and effort required. Voting on non-routine issues that have a material impact is required.

Frank Henry, CFA, works as an investment manager at Beta Financials. One of his clients offered him a free trip to Mauritius for excellent performance, which Henry accepted. Henry’s boss recently learned about this arrangement from another employee, but did not do anything about the arrangement, as the client was very important to the firm. Which of the following is most likely?

Henry violated Standard IV (B): Additional Compensation Arrangements and his boss violated Standard IV (C): Responsibilities of Supervisors.

•Henry violated Standard IV (B) by not obtaining written consent from his employer before accepting the gift.
• Henry’s boss violated Standard IV (C) by failing to take appropriate action

Mendoza’s brief presentation and information sheet most likely:

comply with both GIPS and the Standard regarding performance presentation.

Mendoza has not violated the Standards of Practice or GIPS. Because the presentation was introductory and brief, Mendoza was not required to give any supporting documentation, but he made it available to clients and prospective clients upon request. His claim of GIPS compliance on the information sheet is appropriate.

Smith Rivers, CFA, manages the portfolio of Alan Chou. Alan has retired and relies on his investment portfolio exclusively to provide income every year to meet living expenses. Alan places an order with Smith to invest half his portfolio in a very risky biotech company. Which of the following should Smith least likely do?

Go ahead and make the trade

According to Standard III (C): Suitability, members who are in an advisory relationship with a client must conduct a suitability analysis prior to making a recommendation or taking investment action. In case of unsolicited trade requests that a member knows are unsuitable for the client, the member should refrain from making the trade or seek an affirmative statement from the client that suitability is not a consideration.

Martha Stevens, CFA, is an investment manager who uses her friend, Robert James, exclusively for her clients’ brokerage transactions. James provides better services than other brokers in return for a slightly higher price, which Stevens believes is justified. Which of the following statements is most accurate?

Stevens has not violated any standard.

Stevens is justified in using James as a broker, as the slightly higher charges are justified by the better service.

Dudley Thompson is a bond salesman for a small broker/dealer in London. His firm is the lead underwriter on a new junk bond issue for Ibex Corporation, and Thompson has sent details of the offering to clients. Thompson calls only his accounts over £1,000,000 for whom he thinks the issue is suitable. Thompson also posts his firm's optimistic projections for Ibex's performance in several Internet chatrooms. According to the Standards concerning market manipulation and fair dealing, Thompson is in violation of:

neither of these Standards.

Thompson has not violated Standard 11(B) Market Manipulation by posting his firms projections for Ibex. A firms recommendation of a security may increase its price without any intent to mislead the market. The firm has disseminated the details of the offering to its clients fairly, so Thompson may call individual clients without violating the Standard III(B) Fair Dealing.

Jim Young, CFA, resides in the Republic of Spartica, but frequently does business in Glaburland, with a client who also happens to be a citizen of Spartica. Spartica laws apply, and they state that laws of the client’s home country govern. Spartica’s laws are more strict than the Code and Standards, while Glaburland’s laws are less strict than the Code and Standards. Young is most likely required to adhere to:

The laws of Spartica.

Because applicable law (Spartica’s law) states that the law of the client’s home country governs (which is more strict than the Code and Standards) Young must adhere to the laws of Spartica.

Which of the following is most likely a violation of Standard III (B): Fair Dealing?

An analyst carries out trades for discretionary accounts before non‐discretionary accounts.

• Discriminating against certain clients when carrying out trades is a violation of Standard III (B): Fair Dealing.
•Statement A describes a violation of Standard V (B): Communication with Clients and Prospective Clients.
• Statement C describes a violation of Standard I (C): Misrepresentation.

According to the recommended procedures for complying with the Standard on suitability, which of the following statements regarding an investment policy statement (IPS) is least accurate?

A client’s IPS must be updated at least quarterly to reflect any changes in their investment profile.

Standard III(C) Suitability requires that members and candidates update client information (the IPS) at least annually. The IPS can be updated more frequently if there are significant changes in the investment strategy or client characteristics.

Once a supervisor learns that an employee under his supervision has violated the law or the CFA Institute Standards of Professional Conduct, his first step must be to:

Initiate an investigation to ascertain the extent of the wrongdoing.

Once any violation is detected, a supervisor must immediately launch an investigation to determine the extent of the wrongdoing.

Alpha Advisors Inc. is an investment management firm with a client base that ranges from individuals to large foundations. Which of the following firm policies is least appropriate if Alpha adopts the Code and Standards? Alpha:

excludes client accounts of family members of employees from participating in IPOs.

Standard III(B) Fair Dealing requires that all clients be treated fairly. Members and candidates should not discriminate against any client. A family member who is a fee-paying client should not be treated differently from other clients when taking investment action. Following up changes in recommendations with phone calls to larger clients is not a violation of the Standard if the changes have been disseminated fairly.