CIMA Ethics & Investment Consulting Process 2 — Questions and Answers
Question 1: A CIMA professional discovers that a colleague is recommending unsuitable products to elderly clients for higher commissions. What is the FIRST appropriate action?
- Report directly to the SEC without internal escalation
- Discuss the concern with the colleague and, if unresolved, escalate internally (Correct answer)
- Ignore the situation if the clients have not complained
- Immediately terminate the colleague's client relationships
Correct answer: Discuss the concern with the colleague and, if unresolved, escalate internally
Ethics standards require addressing concerns directly first, then escalating through proper internal channels before external reporting.
Question 2: In the investment consulting process, which step immediately follows the client discovery phase?
- Portfolio implementation
- Investment policy statement development (Correct answer)
- Performance measurement
- Manager selection
Correct answer: Investment policy statement development
After gathering client information in discovery, the next step is formalizing objectives and constraints in an Investment Policy Statement (IPS).
Question 3: A consultant receives a gift worth $500 from an asset manager seeking to win business. Under CIMA standards, this should be:
- Accepted if disclosed to the employer
- Declined or disclosed and approved per firm policy before acceptance (Correct answer)
- Accepted freely as standard industry practice
- Accepted only if the manager is already on the approved list
Correct answer: Declined or disclosed and approved per firm policy before acceptance
Material gifts from third parties must be disclosed and approved per firm policy to avoid conflicts of interest.
Question 4: Which fiduciary concept requires a consultant to act solely in the client's best interest rather than their own or their firm's interest?
- Duty of loyalty (Correct answer)
- Duty of care
- Duty of confidentiality
- Duty of disclosure
Correct answer: Duty of loyalty
The duty of loyalty obligates fiduciaries to prioritize client interests above all competing interests.
Question 5: When constructing an Investment Policy Statement, which element defines the maximum acceptable loss a client can sustain in any given period?
- Return objective
- Risk tolerance (Correct answer)
- Liquidity constraint
- Time horizon
Correct answer: Risk tolerance
Risk tolerance specifies the level of loss a client can emotionally and financially withstand, forming a key constraint in the IPS.
Question 6: A CIMA charterholder uses material non-public information about a merger to advise clients to buy shares of the target company. This violates:
- Only firm compliance policy
- Securities laws and CIMA's code of ethics prohibiting insider trading (Correct answer)
- The duty of care but not the duty of loyalty
- No rule if clients profit from the advice
Correct answer: Securities laws and CIMA's code of ethics prohibiting insider trading
Trading on material non-public information violates securities laws and CIMA's prohibition on insider trading, regardless of client benefit.
Question 7: In manager due diligence, which qualitative factor is MOST critical when evaluating a portfolio manager's long-term reliability?
- Three-year trailing returns
- Stability and depth of the investment team (Correct answer)
- Current assets under management size
- Fee schedule relative to peers
Correct answer: Stability and depth of the investment team
Team stability and depth are primary qualitative indicators of a manager's ability to sustain its investment process over time.
CIMA Ethics & Investment Consulting Process 2
A CIMA professional discovers that a colleague is recommending unsuitable products to elderly clients for higher commissions.
What is the FIRST appropriate action?