Ethical and Professional Standards Flashcards
7 cards from real CFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Ethical and Professional Standards flashcards as text
Under Standard I(B) – Independence and Objectivity, which action BEST protects a CFA charterholder from compromising their independence?
Answer: Declining gifts that could reasonably be expected to compromise judgment
Standard I(B) requires declining gifts that could reasonably influence judgment, not merely disclosing them.
A portfolio manager receives research reports from a broker who also executes trades. Under soft-dollar standards, this arrangement is acceptable if:
Answer: The research directly benefits clients whose commissions funded it
Soft-dollar arrangements are permissible when research provides direct benefit to the clients whose commissions funded the service.
Standard II(A) – Material Nonpublic Information prohibits trading on inside information. A 'mosaic theory' defense is valid when:
Answer: The analyst combines multiple pieces of public information to form a conclusion
Mosaic theory allows analysts to reach investment conclusions by combining multiple pieces of publicly available information.
Which of the following scenarios is MOST likely a violation of Standard II(B) – Market Manipulation?
Answer: Publishing a research report with a bullish outlook to inflate a position
Issuing misleading research to artificially inflate prices for personal gain constitutes market manipulation under Standard II(B).
Standard III(A) – Loyalty, Prudence, and Care requires members to act in clients' best interests. If a member's employer and client interests conflict, the member must:
Answer: Prioritize client interests over those of the employer
Standard III(A) places client interests above employer interests when conflicts arise.
When must CFA members update their clients' investment policy statements (IPS) according to Standard III(C) – Suitability?
Answer: When client circumstances, objectives, or constraints change materially
Standard III(C) requires updating the IPS whenever there is a material change in the client's circumstances, objectives, or constraints.
Under Standard IV(B) – Additional Compensation Arrangements, a member who receives outside compensation must:
Answer: Disclose the arrangement in writing to the employer and obtain consent
Standard IV(B) requires written disclosure to the employer and explicit consent before accepting additional compensation arrangements.