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Ethics & Regulatory Standards Flashcards

7 cards from real CIM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Ethics & Regulatory Standards flashcards as text

  1. A manager holds a large personal position in a stock and is considering recommending it to clients. The appropriate step is to:

    Answer: Disclose the conflict of interest to clients and employer

    Personal holdings that could impair objectivity are conflicts that must be fully disclosed to clients and the employer.

  2. Rule 204A-1 under the Advisers Act requires registered advisers to adopt a:

    Answer: Code of ethics including personal trading reporting by access persons

    Rule 204A-1 requires a code of ethics that sets standards of conduct and requires access persons to report personal holdings and transactions.

  3. Under Rule 206(4)-7 (the Compliance Rule), a registered investment adviser must:

    Answer: Appoint a chief compliance officer and review its compliance policies at least annually

    The Compliance Rule requires written policies and procedures, an annual review, and a designated chief compliance officer.

  4. A manager is asked by a client to guarantee a 10% annual return on an equity portfolio. The ethical response is to:

    Answer: Decline to guarantee returns and explain the risks involved

    Guaranteeing investment returns on risky assets is a misrepresentation and violates professional standards.

  5. Rule 206(4)-5, the 'pay-to-play' rule, restricts investment advisers from:

    Answer: Receiving compensation from a government entity for two years after certain political contributions to its officials

    The pay-to-play rule imposes a two-year compensation ban after covered persons make contributions above de minimis limits to certain government officials.

  6. Which factor is most important when determining whether an investment is suitable for a client?

    Answer: The client's objectives, risk tolerance, time horizon, and constraints

    Suitability is based on the client's investment policy statement, including objectives, risk tolerance, and constraints.

  7. A firm's information barrier ('Chinese wall') between investment banking and research is primarily designed to:

    Answer: Prevent the misuse of material nonpublic information and protect research independence

    Information barriers restrict the flow of MNPI and preserve the independence of research from banking pressures.