CFA Domain 1: Ethical and Professional Standards (Quiz 2)

Long Ming often places her taxable account trades with Jiang Bai, CFA at Pheng Securities, Inc. Ming asks Bai for retirement advice. Bai has no experience in giving retirement advice but does have a preexisting relationship with Insights Financial Planning (Insights) and refers Ming to Insights. After reviewing Insights' suggested retirement plan, Ming speaks with Mao Yi, CFA at Insights and is considering signing a client contract. As part of the referral arrangement between Pheng and Insights, Yi would direct Ming's retirement account trades to Bai instead of her firm's preferred broker. According to Standard VI(C) Referral Fees, which of the following must disclose the referral arrangement to Ming before she signs the contract?

Kyle Trainor, CFA, publishes a popular investing newsletter. In the most recent edition he recommends that subscribers buy Ambit Holdings (AHC). Trainor has owned AHC for many years and would like to sell it, but he believes that AHC is undervalued at its current price of $25 per share. His recommendation is based on interviews with AHC's executives as well as his own independent research, and he believes that AHC's price will double when it releases its year-end earnings next month. He includes a few details of his research, using phrases such as "I have heard that earnings will be very strong" and "Many people think that this stock will SOAR." He also discloses his ownership of AHC stock. Based on his recommendation, many subscribers buy AHC stock, which causes the price to rise. Before AHC releases its year-end earnings, Trainor sells his entire AHC position at a price of $45 per share. After AHC releases its earnings report, its price continues to rise, peaking at $64 per share before declining. Did Trainor most likely violate Standard II(B) Market Manipulation?

Karl Mahler, CFA, creates a mutual fund in Country A, where he is a resident. Mahler intends to sell the security in both Country A and Country B. The laws of Country A are more strict than the laws of Country B, and the laws of both countries are more strict than the Code and Standards. When selling the mutual fund in Country B, Mahler must adhere to the:

"Erik Johansen, CFA, and Claire Olsen, CFA, decide to start their own fund. They create a marketing brochure that includes the following: ""Claire Olsen, CFA, a self-employed investor, has developed a proprietary model focused on growth stocks. The model achieved a simulated annualized return of 15% over the past five years."" ""Erik Johansen, CFA, averaged a 12% annual return from 20X1 to 20X7 while working as a portfolio manager at his prior employer, Henderson Bank."" Johansen received written approval from Henderson to use the return data. Based on this information, have Johansen and Olsen most likely violated Standard III(D) Performance Presentation?"

Sofia Giordano, CFA, is a private tutor for Candidates taking the CFA exam. Her marketing materials state that her program includes "tips and strategies to pass the CFA exam." She continually works to make the program's practice exams more realistic. The day after the end of the most recent CFA exam period, Giordano sends a follow-up email to her students, congratulating them on getting through the exam and asking them which specific topics, in each domain, were tested so she can improve next year's practice exams. Giordano most likely violates Standard VII(A) Conduct as Participants in CFA Institute Programs:

Wang Pei Han, CFA, is an independent investment consultant. Among her clients are the investment fund for Bright Life Insurance (BLI) and the personal investment account for the fund's manager, Li Jie. Wang is contacted by the CFA Institute Professional Conduct Program (PCP) regarding her own potentially unethical, but not illegal, activity. The PCP is requesting information about the fund and Li's investment account to support its investigation. Local law requires that information about illegal activity be disclosed to authorities but does not mandate any specific action otherwise. Given that BLI and Li are clients, to comply with Standard III(E) Preservation of Confidentiality, Wang's most appropriate action is to provide the PCP information about:

Sonja Hossi, CFA, recently started her own investment research firm, Hossi Investor Research (HIR). Throughout her career, Hossi has been a well-known analyst in the paper industry. The chief financial officer (CFO) of Metsa, a company in the pulp sector of the industry, contacts Hossi and asks her if HIR will publish a Metsa-prepared research report that recommends Metsa as a "buy"; HIR currently rates Metsa as a "hold." The CFO offers to pay Hossi her standard flat fee to publish the report under her name. After conducting her own due diligence, Hossi believes that the upgrade is appropriate. She makes some minor changes to the report's wording, but otherwise publishes it "as is" with herself as author and recommending Metsa as a "buy." She also discloses that she was paid by Metsa. Has Hossi most likely violated Standard I(C) Misrepresentation?

Hudson Bright, CFA, just received his certificate in quantitative finance. As part of his studies, he developed training modules for financial modeling. Soon after receiving his certificate, Bright joins QED Consulting, a quantitative analysis consulting firm, and posts news about his certificate and new job on social media. The local CFA Society president sees his post and asks him to teach financial modeling classes. After determining that the time commitment will not hinder his performance at QED, Bright agrees to teach a monthly, one-hour class for 6 months at €500 per class. He advises QED of his plans in an email that states, "I am writing to inform you that I have agreed to partner with the local CFA Society to teach financial modeling classes. Please contact me with any questions." He does not receive a response and begins teaching the classes. Has Bright most likely violated Standard IV(A) Loyalty to Employer?

"Calvin Wurtz, CFA, is the founder and CEO of Florenz Equities, an asset management firm specializing in small-cap stocks. The firm's marketing materials display its average compounded returns over 5, 10, and 15 years. The materials include the following statements: Statement 1: ""Average returns for each time period shown in these materials include returns from both currently active accounts and accounts that were terminated during that period."" Statement 2: ""We present average return data gross of management fees."" The materials do not specify the dates when accounts were terminated. The materials state that the firm does not comply with Global Investment Performance Standards® (GIPS). Has Wurtz violated Standard III(D) Performance Presentation with respect to Florenz's marketing materials?"

According to The Code of Ethics, members and candidates are most likely required to:

If a professional organization has standards of conduct in addition to its code of ethics, the purpose of the standards is most likely to describe:

A framework for ethical decision-making will most likely be effective when:

The CFA Institute's Professional Conduct staff identifies a member as the subject of a written complaint. According to the CFA Institute Bylaws and Rules of Procedure for Professional Conduct, which of the following is most likely the Professional Conduct staff's next step?

Which of the following best describes an illegal but ethical activity?

Parkhurst Investment Advisors (PIA) is a fee-based provider of stock selection and asset allocation advice to large, defined-benefit pension plans. It does not manage assets but maintains detailed records on its recommendations. For the last 12 years, PIA has created composites from the different portfolios that it has recommended to its clients. In its advertising literature, PIA displays each year's return for its composites, both gross of and net of a hypothetical 1% annual fee, as well as the return for each composite's benchmark. Can PIA claim compliance with the Global Investment Performance Standards (GIPS)?

According to Standard IV Duty to Employers, all members and candidates must:

Which of the following situational influences is most likely to challenge ethical behavior?

To claim compliance with Global Investment Performance Standards (GIPS), a firm most likely will state that it:

Bull Advisors, based in Country Y, expanded its operations to Country X, where securities laws and regulations are less strict than either CFA Institute's Code and Standards or Country Y's laws and regulations. One of Bull's advisors, Joseph Telluci, CFA, travels to Country X to meet with a client. In a rush to meet with the client before she leaves for vacation, Telluci does not familiarize himself with Country X's securities laws and regulations. After the meeting, he begins the investment management process on behalf of the client based on the laws, regulations, and rules of Country Y and the Code and Standards. Has Telluci most likely violated Standard I(A) Knowledge of the Law?

Naomi Jorgensen, CFA, a broker at Belton Financial, Inc., currently has a sell rating on Alpha Pharmaceuticals, Inc. (API) due to its lackluster pipeline of therapeutics. Derek DiGravio, CFA, an investment banker at Belton, is helping API with its next round of funding and believes that if API receives an additional cash infusion, it will be very successful. DiGravio suggests to Jorgensen that she should reconsider her rating. To comply with Standard I(B) Independence and Objectively, Jorgenson's best course of action is to: