Ethics

Question 1

Set of shared beliefs or moral principles about what is good or what is bad

Answer 1

Ethics

Question 2

Behavior that follows a set of rules and moral principles, based on shared beliefs about what behavior is acceptable and unacceptable

Answer 2

Ethical conduct/behavior

Goes beyond what is legally required
Consistent with society’s ethical expectations

Question 3

Written set of moral principals that acts as a general guide to behavior; a way to communicate the values, principles, and expectations of what constitutes acceptable behavior for members

Answer 3

Code of ethics

Does not imply gauranteed behavior;
May include rules or standards

Gneral guide for how community members should act; they communicate the organization’s values and overall expectations regarding member behavior, but they do not identify specific behaviors required of community members

Question 4

May include specific standards or behavior or only state principles of conduct without specific standard or guidance

Answer 4

Code of conduct

Question 5

A way for a profession to communicate to the public that its members will use their knowledge and skills to serve their client in an honest and ethical manner

Answer 5

Professional code of ethics/conduct

Question 6

The standard that matches client return requirements and risk tolerance, and the characteristics of securities recommended

Answer 6

suitability standard

(vs fiduciary)

Question 7

requires professionals to use their knowledge and expertise to act in the best interest of the client

Answer 7

Fiduciary (stronger than suitability)

Question 8

What are the three challenges to ethical behavior?

Answer 8

1. Individuals overestimating their own ethical character
2. situational influences (money, prestige, loyalty, peers)
3. rules-based compliance culture (people just checking the boxes that they followed the rules)

Question 9

What objective of ethical conduct best distinguishes from legal conduct?

Answer 9

Ethical conduct:
Considers and benefits multiple stakeholders

Question 10

Framework designed to lead to better decision making processes:

Answer 10

Framework for Ethical Decision Making

used for all decisions

Question 11

1. Identify: stakeholders, facts, ethical principles, conflicts of interest
2. Consider: alternative actions, situational influences, seek other perspectives
3. Decide & act:
4. Reflect: was the outcome anticipated?

Answer 11

Framework for Ethical Decision Making

Question 12

Benchmarks for minimally acceptable behavior of community members are:

Answer 12

Standards of conduct

Applied to specific communities or societal groups and identify specific behaviors required of community members

Question 13

Balances self-interest with both the direct and indirect consequences of the behavior on others

Answer 13

Ethical Conduct

Question 14

Societies’ beliefs about what is considered good or bad conduct

Answer 14

Ethical Principles

Question 15

Plays an important part in establishing a profession because a client relationship is based on trust, whereby the professional puts his or her client’s interest first:

Answer 15

Code of ethics

The code enables a relationship to be established on the basis of trust, because clients rely heavily on the specialized knowledge and skills of professionals to achieve their goals

Question 16

Consciously considering long-term consequences will help offset:

Answer 16

Situational influences

When focusing on the short-term factors, the likelihood of poor ethical decision making increases

Question 17

This approach can oversimplify decision making and may not encourage decision makers to consider the larger picture

Answer 17

Compliance approach

.A strong compliance culture may be a good start in developing an ethical culture but can become another situational influence that may result in employees failing to consider other important factors

Question 18

Shown by thinking that your intelligence level will prevent you from acting in an unethical manner

Answer 18

Overconfidence bias

Question 19

Trading while in possession of material nonpublic information is an example of situation that:

Answer 19

Not illegal; but CFAI considers unethical
(legal, but unethical)

Question 20

The single most important factor in promoting ethical behavior within an investment firm is done by:

Answer 20

Senior management promoting a strong culture of intergrity

Question 21

Responsible for enforcing the CFAI Code & Standards

Answer 21

Disciplinary Review Committee (DRC)

Question 22

This group maintains overall responsibility for the Professional Conduct Program (PCP) and Disciplinary Review Committee (DRC)

Answer 22

CFAI Board of Governors

Question 23

In a case when where the Professional Conduct staffs finds that a violation has occured, they will proposes a:

Answer 23

Disciplinary Sanction

If the member/candidate rejects the sanction, the DRC will hold a hearing

Question 24

Provides guidance to which CFA Institute members and candidates are required to adhere:

Answer 24

Standards of Practice Handbook

Question 25

When an **inquiry** is initiated, the Professional Conduct staff conducts an investigation that may include:

Answer 25

A written explanation from the member/candidate As well as: * Interviewing the member/candidate * Interviewing the complaintaint and third parties * Collecting relevant documents and records

Question 26

The foundation of the financial industry is :

Answer 26

Trust ## Footnote Because investors rely on the specialized knowledge of investment professionals Investment professional have more power than their clients, due to high level of knowledge of the material and clients need their assistance

Question 27

Determine's the ethical quality of a person's behavior:

Answer 27

Situational influences

Question 28

The 8 GIPS Standards for firms

Answer 28

1. Fundamentals of complinace 2. Input Data & Calculation methodology 3. Compsite and Pooled Fund maintenance 4. Composite **Time-Weighted Return** Report 5. **Composite** **Money-Weighted Return** Report 6. **Pooled Fund** Time-Weighted Return Report 7. Pooled Fund Money-Weighted Return Report 8. Advertising

Question 29

Is verification for GIPS compliance required?

Answer 29

No, but it is encouraged

Question 30

If a firm chooses verification, GIPS require the verification to be performed by

Answer 30

A third party

Question 31

If a firm chooses verification, GIPS require that the verification:

Answer 31

apply to the **entire firm's** methods and practices, rather than that of selected composites

Question 32

GIPS applies to:

Answer 32

Firms ## Footnote If you are a charterholder, you are still allowed to work for a firm that does not adopt the GIPS

Question 33

How are non-discretionary portfolios handled, in regards to Composites?

Answer 33

The company is not required to include these portfolios in it's corresponding composite becasue the portfolio does not follow the firm's strategies

Question 34

Portfolios must be assigned to composites before:

Answer 34

The **returns are known**; assigning them at the end of the year is not acceptable ## Footnote Should be assigned at **inception of portfolio**, even before a full year of performance figures

Question 35

How many composites can a discretionary portfolio be assigned to?

Answer 35

One

Question 36

The definition of the firm is the foundation for firm-wide compliance and creates boundaries in order to determine total firm assets, according to which standard?

Answer 36

According to Section 1, Fundamentals of Compliance

Question 37

Used by GIPS firms to give clients and prospects information about a firm's past performance managing investments in various asset classes or investment strategies

Answer 37

Composites

Question 38

Recognizing the need for one globally accepted set of investment performance presentation standards, CFA Institute created the:

Answer 38

Global Investment Performance Standards (GIPS)

Question 39

Enables a firm to participate in competitive bids against other compliant firms around the world

Answer 39

Compliance with GIPS standards

Question 40

T/F: Compliance with GIPS eliminates the need for in-depth due diligence on the part of the investor

Answer 40

False

Question 41

What is the goal number of year of GIPS compliant performance results presented?

Answer 41

10 years

Question 42

If a firm resides somewhere where local law is different from GIPS, can they still comply with GIPS?

Answer 42

Yes, but they should follow local law over GIPS and disclose where they had to follow different laws

Question 43

When a firm is first becoming compliant with GIPS, the firm is required to present a minimuim:

Answer 43

of 5 years of compliant annual investment performance ## Footnote You need 5 years, at least of GIPS standards compliant investment performance

Question 44

What are the six components of the Code of Ethics?

Answer 44

1. Act in ethical manner 2. Intergrity 3. Use reasonable care and be independent 4. Be a credit to the investment profession 5. Uphold capital markets rules and regulations 6. Be competent

Question 45

The two principles of the Rules of Procedure for Proceedings Related to Professional Conduct are:

Answer 45

1. confidentiality of proceedings 2. fair process to the member and candidate

Question 46

A professional organization most appropriately enforces upon its members:

Answer 46

Ethical standards only | (not legal standards)

Question 47

Must be the corporation, subsidiary, or division that holds itself out to the client as a specific business entity:

Answer 47

GIPS-compliant firm definition

Question 48

# GIPS: If the firm has different geographic locations, this firm definition should:

Answer 48

include all the locations

Question 49

# Composites: * What: * When: * How many:

Answer 49

* All discretionary portfolios * Current and past * Must be included in one and only one composite