Book 1 L 1: Ethics _ GIPS Flashcards

Question

*Standards of Professional Conduct - Duties to Clients* ***Loyalty, Prudence, and Care***

Answer 1

* Have a duty of loyalty to their clients * Must act with reasonable care and exercise prudent judgement * Must act for the benefit of their clients and place their clients' interests before their employer's or their own interests.

Answer 2

* Must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action or engaging in other professional activities.

Answer 3

* When in an advisory relationship with a client they must: * make a reasonable inquiry into the client's investment experience, risk and return objectives, and financial constraints prior to making a recommendation or taking action and must update this information regularly. * Determine if an investment is suitable to the clients finaical situation and is consistent with their written objectives * Judge the suitability of an investmetn in the context of the client's overall portoflio * When responsible for managing a portoflio to a specific mandate, strategy or style they must: * only make recommendations or take action consistent with stated objectives and contstraints.

Answer 4

* Must make reasonable efforts to ensure that it is **fair, accurate** and **complete**.

Answer 5

Must keep information about current, former and prospective clients confidential unless: * The information concerns illegal activities on the part of the client or prospective client * Disclosure is required by law * The client permits it

Answer 6

* Must act for the benefit of their employer * Must not deprive their employer of the advantage of their skills and abilities * Must not divulge confidential information * Must not otherwise cause harm to their employer

Answer 7

* Must not accept gifts, benefits, compensation or consideration that competes with , or might reasonably be expected to create a conflict of interest with their employer's interest unless they obtain written consent from all parties involved.

Answer 8

* Must make reasonable efforts to ensure that anyone subject to their supervision or authority complies with applicable laws, rules regulations and the Code and Standards.

Answer 9

* Must exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions. * Must have a reasonable and adequate basis, supported by appropriate research and investigation, for an investment analysis, recommendations or action.

Answer 10

* Must disclose the basic format and general principles of the investment processes used to analyze investments, select securities and construct portfolios and must promptly disclose any material changes. * Must disclose significant limitations and risks associated with the investment process. * Use reasonable judgement in identifying which factors are important to their investment analysis, recommendation or actions and include those factors in communications * Distinguish between fact and opinion

Answer 11

* Must develop and maintain appropriate records to support their investment analysis, recommendations and actions

Answer 12

* Must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to clients/ employers. * Must ensure that disclosures are prominent, in plain langauge and communicate the relevant information effectively.

Answer 13

* Must give priority to investmetn transactions for client s and employers over those where the candidate is the beneficial owner

Answer 14

* Must disclose to employers / clients any compensation, considerations or benefit received from or paid to others for the recommendation of products or services.

Answer 15

Must not engage in any conduct that compromises the reputation or integrity of the CFA Institute or the CFA designation or the integrity, validity or security of the CFA Institute programs.

Answer 16

* Must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute, holding he CFA designation, or candidacy in the CFA program.

Answer 17

* Approach a supervisor or compliance department * Disassocoiate from the activity * In extreme cases, resign from the firm.

Answer 18

* Establish or encourage the firm to establish procedures to keep emoloyees information of chanes to applicable laws/rules/regs. * Review (or encourage) the firm's written compliance procedures on a regular basis. * Maintain, or encourage employer to maintain, copies of current laws/rules/regs * When in doubt about legality, consult supervisor / compliance / lawyer * When dissociating from violations, keep records documenting the violations, and encourage employer to end violations. * There is no CFA requirement to report wrongdoers, but local law may require it. * "Strongly encouraged" to report violations to the CFA Institute Professional Conduct Program

Answer 19

* Violating applicable laws/ rules / regs or the CFA Code of standards * Not adhering to the most strict law / rule / reg * Not approachin a supervisor / compliance group when violations are identified * Not disassociatin themselves from a violation

Answer 20

* Have a code of ethics * Provide employees with information on laws/rules and regs * Have procedures for reporting suspected violations

Answer 21

* Members or firms should pay for their own travel to company events or tours when practicable and limit the use of cooperate aircraft to trips for which commercial travel is not an alternative.

Answer 22

* Restrict employee participation in IPOs and private placements, require pre-approval for participation * Appoint a compliance officer, have written policies on independence and objectivity and clear procedures for reporting violations. * Limit gifts, other than from clients, to token items only.

Answer 23

* Allow investment recommendations or analysis to ve influenced by pressure or inducement * Allocating oversubscribed IPOs to a personal account * Accepting, soliciting or offering thins of value that could be expected to influence the member's or others independence or objectivity * Not disclosing client gifts (prior to acceptance if possible) * Accepting compensation that dependent on the conclusions, recommendations or market impact of the report * Failure to disclosure that research is issuer-paid

Answer 24

* Prepare a summary of experience, qualifications, and services a member is able to perform * Encourage employers to develop procedures for verifying marketing materials provided by 3rd parties * Cite the source of any summaries of materials provided by others * Keep copies of all reports/articles/materials used in the preparation of research reports. * Provide a list - in writing - of the firms' available services and qualifications * Periodically review documents and communications of members for any misrepresentation of employee or firm qualifications and capabilities.

Answer 25

* Presenting third-party research as your won, without attribution to the source. * Guaranteeing a specific return on securities that do not have an explicit guarantee from a government body or financial institution. * Selecting a valuation service because it puts the highest value on untraded security holdings. * Presenting performance data or attribution analysis that omits accounts or relevant variables. * Offering false or misleading information about the analyst's or firm's capabilities, expertise or experience. * Using marketing materials from a thrid party that is misleading

Answer 26

* Develop and adopt a code of ethics and make clear that unethical behavior will not be tolerated. * Give employees a list of potential violations and sanctions, includin dismissal * Check references of potential employees

Answer 27

* Dishonesty, fraud or deceit * Committing any act that reflects adversely on their professional reputation, integrity, or competence * Using the enforcement of the standard against another member to settle personal, political or other dispute that are not related to professional ethics or competence.

Answer 28

* Make reasonable efforts to achieve public dissemination by the firm of information they posses * Encourage their firms to adopt procedures to present the misuse of material nonpublic information.

Answer 29

* Use a firewall within the firm, with elements including: * exercise substantial control of relevant interdepartmental communications through a clearance area such as compliance or legal depts. * Review employee trades * Maintain 'watch', 'restricted' and 'rumor' lists * Monitor and restrict proprietary trading while a firm is in possession of material nonpublic information. * Only take the opposite side of unsolicited customer trades.

Answer 30

* Acting or causing others to act on material nonpublic information * Actin on material nonpublic information by transacting / recommending mutual funds containing the subject securities, as well swaps / options contracts pertainin to those securities * using material nonpublic information received for the purposes of a specific transaction for any other purpose than its intended use.

Answer 31

* Researching an investment conclusion through perceptive analysis of public information with non-material nonpublic information * This is not a violation of the Standards.

Answer 32

* Any intent to mislead in order to affect security values and trading volumes * Spreading false information * Making trades intended to mislead market participants.

Answer 33

* Follow applicable laws/ rules / regs * Establish client investment objectives * Consider Suitability of the portfolio relative to the client's needs and circumstances, the investment's or total portfolio's characteristics * Diversify * Deal fairly with all clients * Disclose conflicts * Disclose compensation arrangements * Vote proxies in the best interest of clients and ultimate beneficiaries * Maintain confidentiality * Seek best execution

Answer 34

* Not exercising prudence, care, skill and dilience that a person acting in a like capacity would use. * Manaing pools of lcietns assets not in accordance with governing documents (i.e. trust docs) * Not making investment decisions in the context of the total portfolio * Inform clients of limitations in an advisory relationship (i.e. only recommending their own firms investments) * Not voting proxies in an informed and responsible manner. * Not usin client borkerae or 'soft dollars' / 'soft commission' for the benefit of the client

Answer 35

* Encourage firms to establish compliance procedures requiring proper dissemination of investment recommendations and fair treatment of all customers and clients. * Maintain a list of clients and holdings - used to ensure that all holders are treated fairly

Answer 36

* Limit the number of people aware of changes to recommendations * Shorten the time frame between decision and dissemination * Publish personnel guidelines for pre-dissemination * Prohibit personnel who have prior knowledge of a recommendation from discussing it or taking action on it. * Disseminate new/changed recommendations simultaneously to all silents how have expressed an interest for for whom an investment is suitable * Develop written trade allocation procedures * Disclose trade allocation procedures * Establish systematic account reviews * Disclose available levels of service

Answer 37

* For each client, put the needs, circumstances and investment objectives into a written IPS * Consider the type of client and whether there are separate beneficiaries, investor objectives, investor constraints, and performance measuremnt benchmarks * Review the investor's objectives and constraints periodically to reflect any chanes in client circumstances.

Answer 38

* The manager should not make the trade until he has discussed with the client the reason it is unsuitable based on the client's IPS. * If the impact on the overall return / risk profiel is minimal: * The manager may follow his firm's poilicy for unsuitable trades. * The client must acknowlede the discussion and an understanding of why the trade is unsuitable * If the impact on the overall return / risk profiel is material: * The IPS may be changed with client acceptance * If the client does not agree to the IPS change, the manager may execute the trade in a separate clint-directed account following firm policy

Answer 39

* Encourage firms to adhere to Global INvestmetn Performance Standards (GIPS) * Consider the sophistication of the audience * Present the performance of a weihted composite of similiar portoflios rather than the perfoamcne of a single account. * Include terminated accounts as part of historical performance and clearly state when they were terminated * Include all appropriate disclosures to fully explain results * Maintain data and records used to calculate the performance being presented.

Answer 40

* Misstating performance * Misleading clients or prospects about their investment performance or their firm's investment performance * Misrepresent past performance or reasonably expected performance * Stating or implying the ability to achieve a rate of return similar to the achieved in the past. * Not making detailed information avaialble upon request or indicating that limited information was made available in a brief presentation.

Answer 41

* Avoid disclosing information received from a client except to authorize coworkers who are also working for the client. * Follow firm procedures for storage of electronic data and recommend adoption of such procedures if they are not in place

Answer 42

* Encouraged to give their employer a copy of the code of standards * Best practice is to use separate social media accounts for personal and professional communications

Answer 43

* Employers should not have incentive and compensation systems that encourage unethical behavior.

Answer 44

* Engaging in activities that may injur their firm, deprive them of profit or the advantage of the employees skill / abilities * Receiving compenstation from someone other than the employer wihtout prior approval * Engaging in the following when leaving an employer prior to their effective resignation: * misappropriation of trade secrets * misuse of confidential information * solicitin employer's clients prior to leaving * self-dealing * misappropriation of client lists * Not adhering to their employer's policies concerning social media *

Answer 45

* Make an immediate written report to the employer detailing any proposed compensation and services (if additional to employer comp). * Partime members should discuss any arrangements that may compete with their employer's interest at the time they are hired and abide by employer limitations *

Answer 46

* Verify details of compensation arrangements with the offering firm.

Answer 47

* Direct and indirect compenstation from a client and or other benefits recevied from third parties

Answer 48

Additional compensation Requires advance written consent.

Answer 49

* This is a gift * Requires dsclosure to the employer to comly with Standard I(B) Independence and Objectivity

Answer 50

* Recommend that his employer adopt a code of ethics. * Should encourage their firm to provide their code of ethics to clients. * Once a compliance program exists, supervisors should: * Distribute it to the proper personnel * Update it as needed * Continually educate staff regarding procedures * Issue reminders as necessary * Require professional conduct evaluations * Review employee actions to monitor compliance and identify violations

Answer 51

* Employers should not commingle compliance procedures with the firm's code of ethics * While investigating a possible breach it is important to limit the suspected employee's activities * Adequate compliance procedures should include: * be clearly written * be easy to understand * designate a compliance officer with authority clearly defined * have a system of checks and balances * outline the scope fo procedures * outline what conduct is permitted * contain procedures for reporting violations and sanctions * structure incentives so unethical behavior is not rewarded.

Answer 52

* Encourage their firms to adopt a policy for periodic review of the quality of third party research * Enourage their firms to adopt the following policies and procedures: * require research/recommendations have a basis and can be substantiated as reasonable and adequate * have detailed written guidance for proper research and due diligence * have measurable criteria for judging the qualify of research , base compensation on that criteria * have written procedures that provide a minimum acceptable level of scenario testing, standards for range of model accuracy over time and a measure of the sensitivity of cash flows * Have a policy for evaluating outside providers of info * Adopt a set of standards for evaluating external advisers and includes a frequency for review.

Answer 53

* Review assumptions used * Determine how rigorous the analysis was * Identify how timely the research is * Evaluate objectivity and independence of the recommendations

Answer 54

* Global and national economic conditions * A firm's financial results and operating history, and the business cycle stage * Fees and historical results for mutual fund * Limitations fo any quantitative models used. * A determination of whether peer group comparisons for evluation are appropriate.

Answer 55

* Members should maintain records indicating the nature of the research, and be able to supply additional information if it is requested by the clietn or ot.her users of the report

Answer 56

* If no regulatory standards or firm policies are in place the Standard recommends a seven-year minimum holding period.

Answer 57

* The recordkeeping requirements generally is the firm's responsibility.

Answer 58

* Broker-dealer market - making activities * Board service * Ownership of stock in the companies that the member recommends or the clients hold. * Members compensation structure *

Answer 59

* Any special compensation arrangements bonus programs, commissions and incentives must be disclosed.

Answer 60

* Members can avoid conflicts that arise with IPOs by not participating in them * Members should encourage their firms to adopt the recommended procedures for firms.

Answer 61

* All firms should have basic procedures in place that address conflicts created by personal investing * limit employee participation in IPOs * restrict participation in private placements * establish blackout/restricted periods * establish reporting procedures including duplicate trade confirms, disclosure of personal holdings and beneficial ownership positions.

Answer 62

* encourage their firms to adopt clear procedures regarding compensation for referrals * should provide their employers with updates at least quarterly.

Answer 63

* Firms that do not prohibit referral fees should have clear procedures for approval and policies regarding the nature and value of referral compensation received.

Answer 64

* Cheating on the CFA exam or any exam * reveal anything about either broad or specific topics tested, content of the exam, questions or required formulas. * Not following rules and policies of the CFA Program * Giving confidential informatino ont eh CFA Program to candidates or public * Improperly usin gthe designation to further personal and professional goals * Misrepresentaitng information on the Professional Conduct Statement (PCS) or the CFA Insitute Professional Development Program

Answer 65

1. sign the PCS annually 2. Pay the CFA Insitute membership dues annually

Answer 66

* Members should be sure that their firms are aware of the proper references to a member's CFA designation or candidacy, as errors in those references are common.

Book 1 L 1: Ethics _ GIPS Flashcards

(91 cards)