CIC Ethical Business Practices 2

Question 1

A CIC discovers that a colleague is front-running client orders by placing personal trades before executing client transactions. What is the most appropriate immediate action?

Accepted Answer

Report the behavior to compliance or a supervisor

Answer

Ignore it if the gains are small

Answer

Confront the colleague directly and demand they stop

Answer

Wait to see if the pattern continues before acting

Question 2

Under the CFA Institute Code of Ethics, which of the following best describes 'material nonpublic information'?

Accepted Answer

Information that a reasonable investor would consider important and that has not been publicly disclosed

Answer

Any information not yet published in a major newspaper

Answer

Proprietary research generated internally by the firm

Answer

Any data obtained from a company's annual report

Question 3

A client asks a CIC to recommend investments that are unsuitable for their risk profile but insists they want them. The counselor should:

Accepted Answer

Document the client's instructions and warn of the risks, then decide based on fiduciary duty

Answer

Execute the trade as directed since the client has final authority

Answer

Refuse to execute any trade the client requests

Answer

Immediately terminate the client relationship

Question 4

Which practice violates the prohibition on market manipulation under investment ethics standards?

Accepted Answer

Coordinating with others to artificially inflate a security's trading volume

Answer

Publishing a research report with a buy recommendation

Answer

Updating a valuation model with new earnings data

Answer

Recommending a security after conducting thorough due diligence

Question 5

A CIC's firm receives soft-dollar arrangements from a broker. Under ethical guidelines, these arrangements are permissible only if:

Accepted Answer

The research or services received benefit the clients whose commissions generated them

Answer

The soft dollars benefit the investment counselor personally

Answer

The arrangement is disclosed only to firm management

Answer

The broker provides the lowest possible commission rate

Question 6

When a CIC manages both discretionary and non-discretionary accounts, trade allocation must be:

Accepted Answer

Conducted in a fair and equitable manner across all client accounts

Answer

Prioritized to discretionary accounts since the counselor has full control

Answer

Based on the size of the account balance

Answer

Allocated first to clients who have been with the firm longest

Question 7

A CIC is asked to provide a performance record that cherry-picks only the best-performing time periods. This would violate which ethical principle?

Accepted Answer

Full and fair disclosure

Answer

Loyalty

Answer

Fair dealing

Answer

Independence