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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

  1. Standard V(A) – Diligence and Reasonable Basis requires that investment recommendations be supported by:

    Answer: Thorough research and a reasonable and adequate basis

    Standard V(A) requires that any recommendation be based on thorough investigation and have a reasonable and adequate basis.

  2. A research analyst relies on a third-party model to generate earnings forecasts. Under Standard V(A), the analyst:

    Answer: Should indicate reliance on third-party work and ensure it is sound

    Members may use third-party research but must indicate the reliance and take reasonable steps to ensure it is sound.

  3. Standard V(B) – Communication with Clients requires distinguishing facts from opinions. Which statement in a research report is an opinion?

    Answer: We believe the stock is undervalued by 20%

    Valuation estimates and forward-looking conclusions are opinions, which must be clearly distinguished from factual data.

  4. Standard V(C) – Record Retention requires that CFA members maintain records supporting their analyses and recommendations for a minimum of:

    Answer: 7 years

    Standard V(C) requires records to be maintained for a minimum of seven years.

  5. Under Standard VI(A) – Disclosure of Conflicts, when must conflicts of interest be disclosed?

    Answer: Promptly and in plain language to clients and prospects

    Standard VI(A) requires prompt, plain-language disclosure of all material conflicts to clients and prospects.

  6. A CFA charterholder owns shares in a company she is about to upgrade to a 'Buy' recommendation. Standard VI(A) requires her to:

    Answer: Disclose the ownership interest in the research report

    Standard VI(A) requires disclosing the personal ownership conflict; it does not automatically require liquidating the position.

  7. Standard VI(B) – Priority of Transactions prohibits members from benefiting personally at the expense of clients. This standard is BEST enforced through:

    Answer: Establishing pre-clearance and blackout period policies

    Pre-clearance requirements and blackout periods are standard compliance mechanisms that enforce the priority of client transactions.