Standards Of Professional Conduct

Question 0

Standard I(B)

Answer 0

Professionalism: Independence and Objectivity

M&C’s must use reasonable care or judgement to achieve and maintain independence and objectivity in professional activities. M&C’s must not solicit or accept any gift, benefit, or compensation that could compromise independence or objectivity.

Question 1

Standard I(A)

Answer 1

Professionalism: knowledge of the law

Members and candidates must understand and comply with all applicable laws, rules, and regulations of any govt, regulatory organization, licensing agency, or professional association governing their professional activities. M&C’s must comply with more strict laws. M&C’s must not participate in violations.

Question 2

Standard I(C)

Answer 2

Professionalism: Misrepresentation

M&C’s must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

Question 3

Standard I(D)

Answer 3

Professionalism: Misconduct

M&C’s must 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.

Question 4

Standard II(A)

Answer 4

Integrity of Professional Markets: Material Non-Public Information

M&C’s who possess material nonpublic information that could affect the value of an investment must not act or cause others to act of the information.

Question 5

Standard II(B)

Answer 5

Integrity of Capital Markets: Market Manipulation

M&C’s must not engage in practices that distort the prices or artificially inflate trading volume with the intent to mislead market participants.

Question 6

Standard III(A)

Answer 6

Duties to Clients: Loyalty, Prudence, and Care

M&C’s have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgement. M&C’s must act for the benefit of their clients and place the clients’ interest before their employers’ or their own interests.

Question 7

Standard III(B)

Answer 7

Duties to Clients: Fair Dealing

M&C’s must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities.

Question 8

Standard III(C)

Answer 8

Duties to Clients: Suitability

1. M&C’s in an advisory relationship to a client must:

A.) Make a reasonable inquiry into the client’s investment experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this information regularly.

B.) Determine that an investment is suitable to the clients financial situation and consistent with the clients written objectives, mandates, and constraints before making a recommendation or taking action.

C.) Judge the suitability of investments in the context of the clients total portfolio.

2. When M&C’s are responsible for managing a portfolio to a specific mandate, strategy, or style, they must make recommendations or take actions that are consistent with the stated objectives and constraints of the portfolio.

Question 9

Standard III(D)

Answer 9

Duties to Clients: Performance Presentation

When communicating investment performance information, M&C’s must make reasonable efforts to ensure that it is fair, accurate, and complete.

Question 10

Standard III(E)

Answer 10

Duties to Clients: Preservation of Confidentiality

M&C’s must keep information about current, former, and prospective clients confidential unless:

1. The information concerns illegal activities on the part of the client,
2. Disclosure is required by law, or
3. The client permits disclosure of the information.

Question 11

Standard IV(A)

Answer 11

Duties to Employers: Loyalty

In matters related to their employment, M&C’s must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer.

Question 12

Standard IV(B)

Answer 12

Duties to Employers: Additional Compensation Arrangements

M&C’s must not accept gifts, benefits, compensation, or consideration that competes with or might reasonable be expects to create a conflict of interest with their employer’s interest unless they obtain written consent from all parties involved.

Question 13

Standard IV(C)

Answer 13

Duties to Employers: Responsibilities of Supervisors

M&C’s 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.

Question 14

Standard V(A)

Answer 14

Investment Analysis, Recommendations, and Actions:
Diligence and Reasonable Basis

M&C’s must:

1. Exercise diligence, independence, and thoroughness in analyzing investments, making recommendations, and taking actions.
2. Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action.

Question 15

Standard V(B)

Answer 15

Investment Analysis, Recommendations, and Actions:
Communication with Clients and Prospective Clients

M&C’s must:

1. Disclose to clients and prospective clients the basic format and general principles of the investment processes they’d use to analyze investments, select securities, and construct portfolios and must promptly disclose any changes that might materially affect those processes.
2. Disclose to clients significant limitations and risks associated with the investment process.
3. Use reasonable judgment in identifying which factors are important to their investment analyses, recommendations, or actions and include those factors in communications with clients and prospective clients.
4. Distinguish between fact and opinion in the presentation of investment analysis and recommendations.

Question 16

Standard V(C)

Answer 16

Investment Analysis, Recommendations, and Actions:
Record Retention

M&C’s must develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investments-related communications with clients and prospective clients.

Question 17

Standard VI(A)

Answer 17

Conflicts of Interest: Disclosure of Conflicts

M&C’s 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 their clients, prospective clients, and employer. M&C’s must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively.

Question 18

Standard VI(B)

Answer 18

Conflicts of Interest: Priority of Transactions

Investment transactions for clients and employers must have priority over investment transactions in which a M&C is the beneficial owner.

Question 19

Standard VI(C)

Answer 19

Conflicts of Interest: Referral Fees

M&C’s must disclose to their employer, clients, and prospective clients as appropriate, any compensation, consideration, or benefit received from or paid to others for the recommendation of products or services.

Question 20

Standard VII(A)

Answer 20

CFA Responsibilities: Conduct as Participants in CFA Institute Programs

M&C’s must not engage in any conduct that compromises the reputation or integrity of CFA Institute or CFA designation or the integrity, validity, or security of CFA Institute programs.

Question 21

Standard VII(B)

Answer 21

CFA Responsibilities: Reference to CFA

When referring to CFA Institute, membership, designation, or candidacy, M&C’s must not misrepresent or exaggerate the meaning or implications of membership in CFA.