Ethics and Investment Professionalism

Question 1

What is the CFA Code of Ethics (6)

Answer 1

1. Act in an ethical manner.
2. Integrity is paramount and clients always come first.
3. Use reasonable care. Be independent.
4. Be a credit to the investment profession.
5. Promote the global capital markets.
6. Be competent.

Question 2

Why is ethical behaviour important?

Answer 2

builds trust in:
- financial markets
- investment professionals
- other stakeholders
- regulators

Question 3

Standards of Professional Conduct:
1. Professionalism

Answer 3

a) knowledge of the law
b) independence and objectivity
c) misrepresentations
d) misconduct

Question 4

Standards of Professional Conduct:
2. Integrity of Capital Markets

Answer 4

a) material non-public information
b) market manipulation

Question 5

Standards of Professional Conduct:
3. Duties to Clients

Answer 5

a) loyalty, prudence, and care
b) fair dealing
c) suitability
d) performance presentation
e) preservation of confidentiality

Question 6

Standards of Professional Conduct:
4. Duties to Employers

Answer 6

a) loyalty
b) additional compensation arrangements
c) responsibilities of supervisors

Question 7

Standards of Professional Conduct:
5. Investment analysis, Recommendations, and Actions

Answer 7

a) diligence and reasonable basis
b) communications with clients
c) records

Question 8

Standards of Professional Conduct:
6. Conflicts of Interest

Answer 8

a) disclosure
b) priority of transactions
c) referral fees

Question 9

Standards of Professional Conduct:
7. Responsibilities as a CFA Institute Member or CFA Candidate

Answer 9

a) conduct as members and candidates
b) reference to the institute, designation, and the CFA programme

Question 10

In the event of a conflict of law/rule/regulation, an individual should comply with ___

Answer 10

the more strict one

Question 11

To maintain independence and objectivity, and avoid bribery/pressure, employees should:

Answer 11

• pay for own transport, accommodation, and costs
• avoid issuer regularly acting as host
• decline lavish gifts

Question 12

Employees should avoid misrepresenting qualifications, services provided, performance records, returns on a risky investment, by:

Answer 12

keeping record of sources used, acknowledge quotations, and site sources of statistics

Question 13

Supervisors should have compliance procedures in place, including:

Answer 13

• clearly written and accessible
• outline permissible conduct
• implement a system of checks
• designate a compliance office
• outline procedure for reporting violations
• define hierarchy of supervision and assign duties to supervisors

Question 14

Which standard is the following in relation to:
‘Understand and comply with all applicable laws, rules, and regulations’

Answer 14

IA - knowledge of the law
Professionalism

Question 15

Which standard is the following in relation to:
‘Achieve and maintain independence and objectivity. Do not offer, solicit, or accept any gift, benefit, compensation, or consideration that comprises independence and objectivity’

Answer 15

IB - independence and objectivity
Professionalism

Question 16

Which standard is the following in relation to:
‘Do not knowingly make any misrepresentation relating to investments analysis, recommendations, actions or professional activities’

Answer 16

IC - misrepresentation
Professionalism

Question 17

Which standard is the following in relation to:
‘Do not engage in any professional conduct involving dishonesty, fraud, or deceit, or commit any act that reflects adversely on their professional reputation, integrity, or competence’

Answer 17

ID - misconduct
Professionalism

Question 18

Which standard is the following in relation to:
‘Do not act or cause others to act on material non-public information that could affect the value of an investment’

Answer 18

IIA - material non-public information
Integrity of Capital Markets

Question 19

Which standard is the following in relation to:
‘Do not engage in practices that distort prices or artificially inflate trading volume with the intention to mislead market participants’

Answer 19

IIB - market manipulation
Integrity of Capital Markets

Question 20

Which standard is the following in relation to:
‘Act for the benefit of clients and place your clients’ interests before your employer’s or your own interests’

Answer 20

IIIA - loyalty, prudence, and care
Duties to Clients

Question 21

Which standard is the following in relation to:
‘Do not favour one client above any other when disseminating recommendations or taking investment action, or engaging in other professional activities’

Answer 21

IIIB - fair dealing
Duties to Clients

Question 22

Which standard is the following in relation to:
‘Make only investment recommendations and take only investment actions that are consistent with the stated objectives and constraints of the portfolio’

Answer 22

IIIC - suitability
Duties to Clients

Question 23

Which standard is the following in relation to:
‘When communicating investment performance information, ensure it is fair, accurate, and complete’

Answer 23

IIID - performance presentation
Duties to Clients

Question 24

Which standard is the following in relation to:
‘Keep information about current, former and prospective clients confidential’

Answer 24

IIIE - preservation of confidentiality
Duties to Clients

Question 25

Which standard is the following in relation to: 'Act for the benefit of your employer and not deprive them of the benefit of your skills and abilities, divulge confidential information or otherwise cause harm'

Answer 25

IVA - loyalty Duties to Employers

Question 26

Which standard is the following in relation to: 'Do not accept gifts, benefits, compensation or consideration (that creates a conflict of interest with your employer's interests) unless with WRITTEN CONSENT from all parties involved'

Answer 26

IVB Duties to Employers

Question 27

Which standard is the following in relation to: 'Ensure anyone subject to your supervision or authority complies with applicable laws, rules, regulations, and the Code and Standards'

Answer 27

IVC- responsibilities of supervisors Duties to Employers

Question 28

Which standard is the following in relation to: 'Exercise diligence, independence, and thoroughness in analysing investment recommendations and taking investment actions'

Answer 28

VA - diligence and reasonable basis Investment Analysis, Recommendations, and Actions

Question 29

Which standard is the following in relation to: 'Provide information to clients on the basic characteristics of an investment, which are the key factors supporting a recommendation, and differentiate between opinion and fact'

Answer 29

VB - communication with clients Investment Analysis, Recommendations, and Actions

Question 30

Which standard is the following in relation to: 'Develop and maintain appropriate records to support analysis, recommendations, and actions'

Answer 30

VC - record retention Investment Analysis, Recommendations, and Actions

Question 31

Which standard is the following in relation to: 'Make full and fair disclosure of all matters that could impair independence and objectivity or conflict with duties to clients, prospective clients and employer'

Answer 31

VIA - disclosure of conflicts Conflicts of Interest

Question 32

Which standard is the following in relation to: 'Transaction for clients and employers have priority over transactions in which a member is the beneficial owner'

Answer 32

VIB - priority transactions Conflicts of Interest

Question 33

Which standard is the following in relation to: 'Disclose to employer, clients, and prospective clients any compensation, consideration or benefit received from/paid to others for the recommendation of products or services'

Answer 33

VIC - referral fees Conflicts of Interest

Question 34

Which standard is the following in relation to: 'Do not compromise the reputation or integrity of the CFA Institute, the CFA designation or the CFA Institute Programes'

Answer 34

VIIA - conduct as members and candidates in the CFA programs Responsibilities as a CFA Member or Candidate

Question 35

Which standard is the following in relation to: 'Do not misrepresent or exaggerate the meaning or implications of membership in the CFA Institute, holding the CFA designation or candidacy in the CFA Program'

Answer 35

VIIB - reference to CFA institute, the CFA designation and the CFA program Responsibilities as a CFA Member or Candidate