Unit 1 - Standards of Professional Conduct
Unit 1 - Standards of Professional Conduct
Unit 1 - Standards of Professional Conduct
Ethics
Which of the following statements is most accurate? Ethics can be described as:
A a commitment to upholding the law.
B an individual’s personal opinion about right and wrong.
C a set of moral principles that provide guidance for our behavior.
Members of the CFA Institute and candidates for the CFA designation must:
• Place the integrity of the investment profession and the interests of clients
above their own personal interests.
Members of the CFA Institute and candidates for the CFA designation must:
• Promote the integrity and viability of the global capital markets for the
ultimate benefit of society.
I. Professionalism
II. Integrity of Capital Markets
III. Duties to Clients and Prospective Clients
IV. Duties to Employers
V. lnvestment Analysis, Recommendations, and Actions
VI. Conflicts of lnterest
VII. Responsibilities as a CFA lnstitute Member or CFA
Candidate
Standards of Professional Conduct
Standard I : Professionalism
Standard I : Professionalism
A. Knowledge of the Law: The Standard
Standard I: Professionalism
Standard I: Professionalism
Standard I : Professionalism
A. Knowledge of the Law: Guidance for Firms
Standard I : Professionalism
Standard I: Professionalism
B. Independence and Objectivity: Guidance for members
• Modest gifts okay
• Distinguish between gifts from clients and gifts from
entities trying to influence a member's behavior
• May accept gift from clients- disclose to employer- get
permission if gift is for future performance
• Members responsible for hiring outside managers should
not accept travel, gifts , or entertainment that could impair
their objectivity
Standards of Professional Conduct
Standard I: Professionalism
B. Independence and Objectivity: Guidance for members
• lnvestment banking relationships: do not bow to pressure to
issue favorable research
• For issuer-paid research, flat fee structure is preferred; must
disclose
• Members working for credit rating firms should avoid
influence by issuing firms
• Users of credit ratings should be aware of this potential
conflict
• Best practice is for analysts to pay for their own commercial
travel to firms being analyzed or to firm events
Standards of Professional Conduct
Standard I: Professionalism
B. Independence and Objectivity: Guidance for firms
Standard I: Professionalism
Standard I: Professionalism
C. Misrepresentation: Examples
Standard I: Professionalism
C. Misrepresentation: Examples
Standard I: Professionalism
Standard I: Professionalism
Standard I: Professionalism
Standard I: Professionalism
Standard I: Professionalism
Questions
According to the Standard on independence and objectivity, members and
candidates:
A. may accept gifts or bonuses from clients.
B. may not accept compensation from an issuer of securities in return for
producing research on those securities.
C. should consider credit ratings issued by recognized agencies to be
objective measures of credit quality.
Questions
Green Brothers, an emerging market fund manager, has two of its subsidiaries
simultaneously buy and sell emerging market stocks. In its marketing
literature, Green Brothers cites the overall emerging market volume as
evidence of the market’s liquidity. As a result of its actions, more investors
participate in the emerging markets fund. Green Brothers most likely:
• Diversify.
• Maintain confidentiality.
Questions
Cobb, Inc., has hired Jude Kasten, CFA, to manage its pension fund. The
client(s) to whom
Kasten owes a duty of loyalty are:
A. Cobb’s management.
B. the shareholders of Cobb, Inc.
C. the beneficiaries of the pension fund.
Questions
A. Loyalty
B. Additional Compensation
C. Responsibilities of Supervisors
Standards of Professional Conduct
• Maintain records
Standards of Professional Conduct
• Records are firm's property and cannot be taken when member leaves
without firm's consent
Connie Fletcher, CFA, works for a small money management firm that specializes in pension
accounts. Recently, a friend asked her to act as an unpaid volunteer manager for the city’s
street sweep pension fund. As part of the position, the city would grant Fletcher a free
parking space in front of her downtown office. Before Fletcher accepts, she should most
appropriately:
Sarah Johnson, a portfolio manager, is offered a bonus directly by a client if Johnson meets
certain performance goals. To comply with the Standard that governs additional
compensation arrangements, Johnson should:
A. Disclosure of Conflicts
B. Priority of Transactions
C. Referral Fees
Standards of Professional Conduct
Lyons is due to update his research coverage of Horizon next week. Lyons should most appropriately:
A. update the report as usual because he is not a beneficial owner of the stock.
B. advise his superiors that he is no longer able to issue research recommendations on
Horizon.
C. disclose the situation to his employer and, if then asked to prepare a report, also
disclose his beneficial ownership of the shares in his report.
Standards of Professional Conduct
Questions
Kate Wilson, CFA, is an equity analyst. Wilson enters two transactions for her personal
account. Wilson sells 500 shares of Tibon, Inc., a stock on which her firm currently has a
“Buy” recommendation. Wilson buys 200 shares of Hayfield Co. and the following day issues
a research report on Hayfield with a “Buy” recommendation. Has Wilson violated the Code
and Standards?
Lyons is due to update his research coverage of Horizon next week. Lyons should most appropriately:
A. No.
B. Yes, both of her actions violate the Code and Standards.
C. Yes, but only one of her actions violates the Code and Standards.
Global Investment Performance Standards GIPS
Introduction
• Follow the local laws for cases in which a local or country-specific law or
regulation conflicts with GIPS, but disclose the conflict.
• When jointly marketing with other firms, if one of the firms claims GIPS
compliance, be sure it is clearly defined as separate from noncompliant
firms.
1. Fundamentals of Compliance
2. Input Data
3. Calculation Methodology
4. Composite Construction
5. Disclosures
6. Presentation and Reporting
7. Real Estate
8. Private Equity
9. Wrap Fee / Separately Managed Account (SMA) Portfolios
Global Investment Performance Standards GIPS
Questions
Which of the following definitions of a firm would violate GIPS?
A. Investment firm that has been in existence for less than five years.
B. Regional branch of an investment management firm marketed under the name of its
parent.
C. Entity registered with the national regulator that oversees its investment management
activities.
Which of the following includes only sections of the Global Investment Performance
Standards?
A. Disclosure, Public Equity, Presentation and Reporting.
B. Real Estate, Calculation Methodology, Fundamentals of Compliance.
C. Input Data, Composite Construction, Wrap Fee/Speculative Margin Account (SMA)
Portfolios.
Global Investment Performance Standards GIPS
Questions
Which of the following definitions of a firm would violate GIPS?
A. Investment firm that has been in existence for less than five years.
B. Regional branch of an investment management firm marketed under the name of its
parent.
C. Entity registered with the national regulator that oversees its investment management
activities.
If a country has regulations in place that conflict with GIPS, firms that wish to claim GIPS
compliance:
A. may not do so because GIPS do not permit exceptions or partial compliance.
B. must establish a subsidiary in a location where local law does not conflict with GIPS.
C. must comply with local regulations and disclose the nature of the conflict in the
presentation.