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Ethical And Professional Standards MCQ - Ethical And Professional Standards Section 1

46 Jessica Morales works as an investment adviser for Chris Crosby, a middleaged, risk-averse investor. As per the investment policy statement, Morales invests in low-risk, high-income equities for Crosby keeping in mind his current needs and objectives. Recently Crosby‟s mother passed away leaving him with a significant inheritance. Morales continues to invest as before without any change in the investment strategy. According to the CFA Institute Standards of Professional Conduct, Morales should:

Refer to Standard III(C) Suitability.

47 Christie Tania, CFA, works as a fixed income manager for Mastermind Invest Capital. She finds an error in the performance results of one of her accounts as the report is about to be released to the client. The correction of the error will show an underperformance of the account compared to the selected benchmark. The client is not satisfied with Mastermind and had previously indicated that the account will be terminated if it did not meet the requisite returns. According to the CFA Institute Standards, Tania should:

According to Standard III(A) Loyalty the client needs to be informed with the updated result of the underperformance of his account. Withholding information is not in the best interest of the client.

48 Bernhard Investment and Brokerage Company, has recently changed its stock selection method based on fundamental analysis to technical analysis. After testing it in-house under various scenarios, the new method seems more appropriate to the investments done by Bernhard. Kurt Ludwig, CFA, a portfolio manager with Bernhard feels that his clients will not understand the change and decides not to inform them. The most appropriate action Ludwig should take to avoid a violation of the Code and Standards is:

Ludwig must disclose to his clients the change in the process of selection. Refer to Standard V(B) Communications with Clients and Prospective Clients

49 Dave Daisuke, CFA, works in the corporate finance department of Advile Securities. He receives a non-cash compensation for every referral he makes to the brokerage department. This arrangement is an accepted norm within the company but the clients are not informed because no cash is given out within the firm for interdepartmental referrals. According to the CFA Institute Standards, the most appropriate action to take for the firm to avoid a violation is to:

Disclosure to clients is important even if the referrals result in a non-cash compensation. Refer to Standard VI(C) Referral Fees.

50 Lauren Crawley is enrolled to take the Level I exam. As he tries hard to remember a formula to complete a question, he notices that the person in front of him gets up to drink water and a piece of paper slips from his pocket and falls on Crawley‟s table. In order to avoid a violation of the CFA Institute Standards of Professional Conduct, the least appropriate action taken by Crawley is to:

Refer to Standard VII(A) Conduct as Participants in CFA Institute Programs.

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Misrepresentation

Investment professionals must not knowingly make false or misleading statements about analysis, recommendations, qualifications, services, or professional activities.

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Complete one short Ethical And Professional Standards Section 1 session today, then return tomorrow. Consistency matters more than a long first session.

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Question:

Which of the following statements is most accurate according to the Standards of Practice Handbook? Members and Candidates:

A. who possess nonmaterial nonpublic information that could affect the value of an investment must not act or cause others to act on the information.
B. who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.
C. who possess nonmaterial public information that could affect the value of an investment must not act or cause others to act on the information.

Correct answer: B

Explanation:

Refer to Standard II(A) Material Nonpublic Information.

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