2019 CFA level 3 qbank r 1 2 CFA ins code of ethics and standards of prof conduct standards I–VII 3 answers

10/11/2018 Learning Management System Question #1 of 62 Wes Smith, CFA, refers many of his clients to Bill Towers, CPA, for accounting services In return, Towers performs routine services for Smith, such as his tax returns, for no charge Towers has just become a member of CFA Institute With this development, Towers must: A) reveal to the prospects referred by Smith that he performs services for Smith, along with the estimated value of those services B) discontinue his services for Smith .in C) only reveal to the prospects referred by Smith that he performs services for Smith en tre Explanation According to VI(C), Referral Fees, as a member of CFA Institute, Towers must tell his clients about the payment in kind to Smith along with an estimate of the value of those services Related Material SchweserNotes - Book o m Question #2 of 62 bo ok c (Study Session 1, Module 2.8, LOS 2-VI.(C)) A rm produces regular proprietary research reports on various companies According to w w Standard VI(B), Priority of Transactions, which of the following would be an "access person?" A) A supervisory analyst who reviews all research reports prior to dissemination w B) An independent auditor with access to material, non-public information on a company being analyzed C) A person working in the mail room Explanation Persons with access to information during the normal preparation of research recommendations are subject to Standard VI(B) An independent auditor is not involved in the normal preparation of research recommendations (Study Session 1, Module 2.8, LOS 2-VI.(B)) Related Material SchweserNotes - Book https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 1/39 10/11/2018 Learning Management System Question #3 of 62 Jim Bennett, CFA, leases o ce space to his best friend, Steve Waters Bennett is an independent investment advisor specializing in high net worth clients and Waters is a licensed life insurance underwriter In lieu of paying rent, Waters refers his insurance clients to Bennett, but only with the clients' permission For clients referred by Waters, Bennett: A) need not disclose the terms of the lease arrangement because Waters obtained the B) must disclose the terms of the lease arrangement .in clients’ permission for the referral C) need not disclose the referral fee if Waters discloses the lease arrangement to the en tre clients rst Explanation bo ok c Standard VI(C), Referral Fees, requires members to disclose to clients and prospects any consideration or bene t received by the member or delivered to others for the recommendation of any services to the client or prospect Bennett has delivered a bene t (free rent) to Waters, which must be disclosed to the clients referred by Waters Bennett must not rely on Waters to make the disclosure (Study Session 1, Module 2.8, LOS 2-VI.(C)) w w o SchweserNotes - Book m Related Material w Question #4 of 62 When an analyst makes an investment recommendation, which of the following statements must be disclosed to clients? A) An employee of the rm holds a directorship with the recommended company B) The rm is a market maker in the stock of the recommended company C) Both of these statements must be disclosed to clients Explanation Both of these items are explicitly listed in the discussion of Standard VI(A), Disclosure of Con icts (Study Session 1, Module 2.8, LOS 2-VI.(A)) https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 2/39 10/11/2018 Learning Management System Related Material SchweserNotes - Book Question #5 of 62 David Lynch is an individual investment advisor who uses mutual funds for his clients He typically chooses funds from a list of 40 funds that he has thoroughly researched The Palmers, a married couple that are a client, asked him to consider the Twin Peaks fund for their portfolio Lynch had not previously considered the fund because when he rst conducted his in research three years ago, Twin Peaks was too small to be considered However, the fund has now grown in value, and after doing thorough research on the fund, he nds the fund has en tre suitable characteristics to be included in his acceptable list of funds He puts the fund in the Palmers' portfolio but not in any of his other clients' portfolios The fund ends up being the best A) not violated the Standards bo ok c performing fund of any of the funds on his list Has Lynch violated any Standards? Lynch has: B) violated the Standards by not disclosing icts to clients C) violated the Standards by not dealing fairly with clients Explanation w w o m Prior to the discovery of the fund, Lynch did not put all of the same funds in all of his clients' portfolios, so there was no reason to so now The fund was among a list of other good funds Lynch did not fail to maintain independence and objectivity, had no icts to disclose to clients, and did not deal unfairly with clients (Study Session 1, Module 2, LOS 2.a) w Related Material SchweserNotes - Book Question #6 of 62 All of the following are required for a CFA Institute member to maintain his or her active status EXCEPT: A) paying membership dues to CFA Institute on an annual basis B) Passing each exam in no more than two tries https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 3/39 10/11/2018 Learning Management System C) remit a completed Professional Conduct Statement on an annual basis Explanation Passing each exam in two or fewer tries is not required to maintain active status as a member of the CFA Institute CFA Institute imposes both of the other choices (Study Session 1, Module 2.9, LOS 2-VII.(B)) Related Material SchweserNotes - Book Tucson Financial Advisors (TFA) has determined that it needs to have the ability to conduct in- in house research to support its other activities To this end, TFA has recently hired Alba en tre Hernandez, a CFA charterholder in good standing, as an investment analyst Hernandez becomes the rst full-time employee of TFA to have the CFA designation When she is hired, her supervisor tells her that TFA is familiar with the CFA Institute Code and Standards, but that the company does not feel that they are important TFA is a well-respected rm with a reputation bo ok c for integrity that predates the CFA program TFA tells her that they not plan to use Hernandez's a liation with CFA Institute in any of their literature or advertisements Prior to her employment with TFA, Hernandez was an independent contractor, providing nancial advice for a fee to private clients She continues to so but has informed these m clients not to reveal this fact to TFA Some of her private clients would be considered viable prospects by TFA, while others would not meet TFA's $1 million net worth criterion Hernandez o routinely uses TFA's data and other research materials in servicing her private clients w w Throughout the year, Hernandez holds a "quarterly investment forum" under the guidance of TFA Prospects nd out about the meetings via private mailings from TFA, which Hernandez w supervises In composing the mailing list, Hernandez is aware that many of the clients not meet TFA's $1 million net worth criterion After each forum, Hernandez often contacts those attendees that not meet TFA's criterion, and she solicits them to become clients in her private practice ChemMex is a large conglomerate headquartered in Monterrey, Mexico At present, ChemMex is planning an IPO in the U.S TFA is seeking the mandate for the IPO, and has asked Hernandez to meet with management to present a proposal Hernandez's uncle, Hector Lopez, is CFO and treasurer of ChemMex In recent years, Lopez has given ChemMex securities to his nieces and nephews as Christmas gifts TFA is not aware of Hernandez's nancial interests and personal connections with ChemMex https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 4/39 10/11/2018 Learning Management System Hernandez is putting together a research report on CoppOre, a rm that mines copper in a developing country She obtains insider information that states a rival rm in that country will soon make a tender o er for CoppOre Hernandez knows the laws in that country very well and knows that trading on inside information is not illegal there Hernandez plans to write the research report exaggerating the facts on positive points in order to encourage her clients to purchase shares in CoppOre, but she does not plan to explicitly say that CoppOre will soon be bought out in a tender o er In doing so, the clients will be encouraged to buy CoppOre stock while not knowing about the tender o er Hernandez feels that this is part of her duciary duty and explains her plan to TFA management The managers of TFA tell her to what she thinks in is in the best interest of the clients Concerning her private clients, Hernandez: en tre Question #7 of 62 A) must obtain written consent from TFA only if the private practice was not disclosed bo ok c orally during the hiring process B) must obtain written consent from TFA to continue the relationship C) must discontinue her independent practice Explanation w w o m Even though the relationships with Hernandez's private clients predate her employment with TFA, she is obligated to obtain written consent from TFA to continue with the activities Moreover, she needs written consent from her private clients as well Standard IV(A) Loyalty to Employer, and Standard IV(B) Additional Compensation Agreements (Study Session 1, Module 2.8, LOS 2-VI.(A)) Related Material w SchweserNotes - Book Question #8 of 62 With respect to the prospects she invites to the "quarterly investment forum" and then solicits for her private practice, Hernandez is: A) not in violation of any Code or Standard B) in violation Standard VI(A) concerning disclosure of icts https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 5/39 10/11/2018 Learning Management System C) in violation of Standard I(D) concerning professional misconduct Explanation Standard I(D) states that members shall not engage in any professional conduct involving dishonesty, fraud, or deceit Hernandez is being dishonest by using a TFA mailing to bring in prospects that she knows cannot become TFA clients with the apparent intent of soliciting them for her own private business Note that Standard VI(A) deals with disclosing icts of interest that would impair the member's ability to make unbiased and objective recommendations, such as serving on a board or having a bene cial interest in a security Standard III(C) states that a member must inquire as to a client's nancial situation and consider the appropriateness of investment recommendations for each client Because there are no speci c recommendations being given, Standard III(C) does not apply here .in (Study Session 1, Module 2.7, LOS 2-V.(B)) Related Material bo ok c Question #9 of 62 en tre SchweserNotes - Book With respect to the proposal for the IPO mandate of ChemMex, Hernandez: A) may meet with ChemMex o cials, but cannot be otherwise involved with the IPO m B) may meet with ChemMex o cials and be involved with the IPO, as long as she discloses the material facts of the situation to TFA w w Explanation o C) is not allowed to meet with ChemMex o cials w Hernandez would be allowed to meet with ChemMex and to be involved with the IPO so long as she discloses the material facts to TFA Once in possession of these facts, TFA is in position to determine if the icts of interest are such that they should preclude Hernandez's participation in the project Standard VI(A), Disclosure of Con icts (Study Session 1, Module 2.7, LOS 2-V.(B)) Related Material SchweserNotes - Book Question #10 of 62 With respect to the recommendation that Hernandez writes for CoppOre, Hernandez may: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 6/39 10/11/2018 Learning Management System A) proceed with the recommendation as long as she does not exaggerate facts and mention the tender o er, but must make an e ort to achieve public dissemination f h d B) proceed with the recommendation as long as she does not exaggerate facts and mention the tender o er, but does not have to make an e ort to achieve public di i i f h d C) not proceed with the recommendation with either the exaggerated information or the information of the tender o er Explanation Related Material SchweserNotes - Book o m Question #11 of 62 bo ok c (Study Session 1, Module 2.7, LOS 2-V.(B)) en tre in Exaggerating facts is a violation of Standard V(A) Diligence and Reasonable Basis Mentioning the tender o er, or causing others to trade in a security involved with a tender o er is a violation of Standard II(A): Material Nonpublic Information According to Standard II(A), in no instance may a member trade or cause other to trade in a security while a member possesses material nonpublic information The fact that the home country does not make trading on information concerning a tender o er a crime does not allow Hernandez to use it because Standard II(A) prohibits it Remember that the member must go along with either the home country laws or the Code and Standards, whichever is stricter w w All of the following are violations of the Code and Standards EXCEPT: A) TFA’s management not making any special e ort to include Hernandez’s holding w the CFA designation in their literature and advertisements B) Hernandez not informing TFA of her private practice and getting written permission for it C) Hernandez using TFA data and research for her private practice Explanation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 7/39 10/11/2018 Learning Management System Using the CFA designation is a privilege and is not mandatory TFA has not prohibited Hernandez from using it, they simply have said that they will not make an e ort to use it, which may actually be in compliance with the Standards in that they avoid any undigni ed use of the designation The other three choices are clear violations Hernandez cannot use the property, i.e., the data and research, of TFA She needs written permission to continue her private practice TFA is required to supervise Hernandez, and they are not ful lling this responsibility by allowing her to proceed with her plans to write the CoppOre report (Study Session 1, Module 2.7, LOS 2-V.(B)) Related Material in SchweserNotes - Book en tre Question #12 of 62 Upon her arrival at TFA, as a CFA charterholder, Hernandez: A) is only required to provide her employer with written noti cation of her obligation bo ok c to comply because she has been told her supervisors are aware of the Code and S d d B) is required to deliver a copy of the Code and Standards to her employer and provide them with written noti cation of her obligation to comply C) is not required to deliver a copy of the Code and Standards to her employer m Explanation w w o There is no longer a requirement to provide an employer with a copy of the Code and Standards (Study Session 1, Module 2.8, LOS 2-VI.(A)) Related Material w SchweserNotes - Book Question #13 of 62 Judy Gonzales is a portfolio manager with Brenly Capital and works on Johnson Company's account Brenly has a policy against accepting gifts over $25 from clients The Johnson portfolio has a fantastic year, and in appreciation, the pension fund manager sent Gonzales a rare bottle of wine Gonzales should: A) present the bottle of wine to her supervisor https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 8/39 10/11/2018 Learning Management System B) inform her supervisor in writing that she received additional compensation in the form of the wine C) return the bottle to the client explaining Brenly's policy Explanation By not returning the bottle she would be violating the Standard on disclosure of icts to the employer, which states that employees must comply with prohibitions imposed by their employer (Study Session 1, Module 2, LOS 2.a) Related Material en tre in SchweserNotes - Book Question #14 of 62 Nichole Zeller and Randy To er have both passed Level II of the CFA Exam Program and have bo ok c registered for Level III Zeller circulates a resume stating that she is a candidate for the CFA designation and has passed Level II of the CFA program To er circulates a resume stating that he is a CFA II Which of the following statements is CORRECT? m A) Only To er has violated the Code of Standards B) Only Zeller has violated the Code of Standards w w Explanation o C) Both Zeller and To er have violated the Code of Standards w The Code and Standards permit an individual to state that he or she is a candidate for the CFA designation as long as the person is registered for the next CFA exam The same individual may state the fact that he or she has passed Level I or II of the CFA program There is no partial designation, such as CFA II (Study Session 1, Module 2.9, LOS 2-VII.(B)) Related Material SchweserNotes - Book Question #15 of 62 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 9/39 10/11/2018 Learning Management System Julie Stades retired several years ago and relinquished her membership in CFA Institute She had the CFA designation up until then She has decided to go back to work and puts the following statement on her resume: "I earned the CFA designation 10 years ago." Is this a violation of Standard VII(B)? A) Yes, she has used the letters "CFA" in an undigni ed manner B) Yes, because she uses "CFA" as a noun C) No, as long as she does not indicate she currently has the designation Explanation in Stades is allowed to state that she earned the designation as long as she does not infer that she currently has the designation en tre (Study Session 1, Module 2.9, LOS 2-VII.(B)) Related Material Question #16 of 62 bo ok c SchweserNotes - Book An analyst who is a member of CFA Institute has composed an introductory information packet m for her new clients, which includes information on fees she receives for referring clients to other professionals and those she pays for having clients referred to her With respect to o Standard VI(C), Referral Fees, this action: w w A) exceeds the requirement of the Standard because she does not need to reveal the fees she pays to those that refer clients to her w B) is not addressed in the Standard C) may not satisfy the Standard if such information is only provided after the receivers of the information have become clients Explanation Standard VI(C) says that a member must reveal information both on fees she receives for referring clients to other professionals and those she pays for having clients referred to her before a prospect becomes a client This allows the prospect to evaluate any partiality of a recommendation and the full cost of the services (Study Session 1, Module 2.8, LOS 2-VI.(C)) Related Material SchweserNotes - Book https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 10/39 10/11/2018 Learning Management System Question #38 of 62 Stephanie Orange, Level II CFA candidate, posts blogs for her exam study group three days after the exam to vent her frustrations over the exam However, to avoid disclosing what was actually on the exam, she only discusses topic areas she thought would be on the exam that were not She writes " the topics selected were unnecessarily obscure Important items like FCF, DDM, and Residual Income were ignored completely " Orange is most likely: A) in violation of Standard VII(A) "the Code and Standards" for providing dential information about the exam B) not in violation because the information was only about what was not on the exam .in C) not in violation because the information about the actual exam contents was en tre posted only after the conclusion of the exam Explanation bo ok c Standard VII(A) Conduct as Participants in CFA Institute Programs prohibits members and candidates from providing dential information about the exam – even after the conclusion of the exam Examples include broad topical areas tested or not tested (Study Session 1, Module 2.9, LOS 2-VII.(A)) Related Material o m SchweserNotes - Book w w Question #39 of 62 Standard VI(B), Priority of Transactions, applies to transactions an analyst takes on behalf of: w A) both of these B) his employer C) his clients Explanation Standard VI(B) addresses the treatment of both these accounts The accounts of clients and employers have priority over personal accounts (Study Session 1, Module 2.8, LOS 2-VI.(B)) Related Material SchweserNotes - Book https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 25/39 10/11/2018 Learning Management System Question #40 of 62 Ken James has been an independent nancial advisor for 15 years He received his CFA Charter in 1993, but did not feel it helped his business, so he let his dues lapse this year He still has several hundred business cards with the CFA designation printed on them His promotional materials state that he received his CFA designation in 1993 James: A) can continue to use the existing promotional materials, and can use the cards until his supply runs out—his new cards cannot have the designation .in B) must cease distributing the cards with the CFA designation and the existing promotional materials the existing promotional materials Explanation en tre C) must cease distributing the cards with the CFA designation, but can continue to use bo ok c Use of the CFA designation must be stopped immediately, however, the receipt of the Charter is a matter of fact (Study Session 1, Module 2, LOS 2.a) Related Material o m SchweserNotes - Book w w Question #41 of 62 w Robert Hopkins has earned the right to use the CFA designation and wants to indicate this on his business card According to CFA Institute Standards of Professional Conduct, which of the following is the proper use of the professional designation on his business card? A) Robert Hopkins, cfa B) Robert Hopkins, Chartered Financial Analyst C) Robert Hopkins, C.F.A Explanation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 26/39 10/11/2018 Learning Management System The CFA designation should always be capitalized and shown without periods The CFA designation should not be referred to as a degree Placing the designation "CFA" or "Chartered Financial Analyst" after one's name on a resume, business card, brochure, or other published material is appropriate (Study Session 1, Module 2.9, LOS 2-VII.(B)) Related Material SchweserNotes - Book in Question #42 of 62 Lance Tuipulotu, CFA, is a portfolio manager for an investment advisory rm He plans to sell en tre 10,000 shares of Park N'Wreck, Inc to nance his daughter's new restaurant venture, but his rm recently upgraded the stock to "strong buy." In order to remain in compliance with Standard VI(B) "Priority of Transactions," Tuipulotu must: having a market impact bo ok c A) delay selling the shares until a rm client makes an o setting purchase to avoid B) not sell the shares of Park N’Wreck C) notify his rm of his intention to sell the shares before selling the shares m Explanation w w o Standard VI(B) "Priority of Transactions" does not prohibit Tuipulotu from trading opposite the rm's recommendation, but he should notify his rm rst Note that if Tuipulotu were a research analyst covering Park N'Wreck, he may be prevented from selling the security if his rm claims compliance with the CFA Institute's Research Objectivity Standards (Study Session 1, Module 2.8, LOS 2-VI.(B)) w Related Material SchweserNotes - Book Question #43 of 62 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 27/39 10/11/2018 Learning Management System Ted Willis received his CFA designation in 1998 and was employed as an investment counselor until 2003 During the past several years, Willis has been out of work because of a serious illness He also failed to pay his annual CFA Institute dues during the current year Willis has now recovered and accepted a position with an investment advisory rm His new business card says, "Ted Willis, CFA." As part of his job with his new rm, Willis uses PowerPoint® to make presentations to groups of prospective clients.  He obtained some of these PowerPoint® slides from web sites, but removed the copyright notice before showing the slides to prospective clients Which of the following statements about Standard VII(B), Reference to CFA Institute, the CFA Willis: en tre A) violated Standard VII(B) but he did not violate Standard I(C) .in Designation, and the CFA Program, and Standard I(C), Misrepresentation, is most accurate? B) did not violate either Standard VII(B) or Standard I(C) C) violated both Standard VII(B) and Standard I(C) bo ok c Explanation m Willis violated Standard VII(B) because his right to use the CFA designation was suspended when he stopped paying CFA Institute dues Thus, he can no longer use the CFA designation on his business card Willis also violated Standard I(C) because he was guilty of plagiarism He inappropriately used copyrighted material, which provided the impression that such material was his own Related Material o (Study Session 1, Module 2.9, LOS 2-VII.(B)) w w w SchweserNotes - Book Question #44 of 62 Judy Albert and Bob Tye, who recently started their own investment advisory business, plan to take the Level III CFA examination next year Albert's business card reads, "Judy Albert, CFA Candidate." Tye has not put anything about the CFA on his business card However, the rm's promotional materials describe the CFA requirements and indicate that Tye participates in the CFA program and has completed Levels I and II According to CFA Institute Standards of Professional Conduct: A) Both Albert and Tye have violated the Standards https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 28/39 10/11/2018 Learning Management System B) Albert has violated the Standards but Tye has not C) Neither Albert nor Tye has violated the Standards Explanation On letterheads and business cards and in directory listings, only the mark CFA or the words Chartered Financial Analyst should appear after the charterholder's name (Study Session 1, Module 2.9, LOS 2-VII.(B)) Related Material in SchweserNotes - Book en tre Question #45 of 62 While on a business trip, John Hayes, CFA, found a notebook that had apparently been left in the waiting area of an airport Hayes opened the notebook and read the title: Con dential: bo ok c Level II CFA Examination Before returning the notebook to CFA Institute, he made a copy and gave it to Linda Sacket, one of his rm's analysts, who was a candidate for Level II of the CFA examination Sacket read the questions and guideline answers before taking the Level II examination According to the CFA Institute Standards of Professional Conduct: m A) both Hayes and Sacket violated the Standards .o B) Sacket violated the Standards, but Hayes did not w w C) Hayes violated the Standards, but Sacket did not Explanation w Both violated Standard VII(A) Conduct as Participants in CFA Institute Programs because they compromised the validity of the examinations (Study Session 1, Module 2.9, LOS 2-VII.(A)) Related Material SchweserNotes - Book Question #46 of 62 Which of the following is least likely a violation of Standard VII(A), Conduct as Participants in CFA Institute Programs? https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 29/39 10/11/2018 Learning Management System A) Expressing opinions in disagreement with CFA Institute advocacy positions B) Disregarding the rules related to the administration of the CFA examination C) Improperly using the CFA Designation to further professional goals Explanation Members and Candidates are allowed to express their opinions about the CFA Institute and CFA Program Both of the other choices violate Standard VII(A) Conduct as Participants in CFA Institute Programs (Study Session 1, Module 2.9, LOS 2-VII.(A)) Related Material en tre in SchweserNotes - Book Question #47 of 62 bo ok c Arthur Harrow, CFA, is a pharmaceuticals analyst at Dominion Asset Management His supervisor directs him to prepare separate research reports on Miracle Drug Company and Wonder Drug Company Harrow serves on the board of Miracle and owns 2000 shares of Wonder, which is currently trading at $25 per share According to CFA Institute Standards of Professional Conduct, which of the following actions, if any, is Harrow required to take if he m writes the research reports? o A) Harrow must disclose to Dominion his relationship with Miracle but not his w w ownership of shares in Wonder B) Harrow must disclose to Dominion his ownership of shares in Wonder but not his w relationship with Miracle C) Harrow must disclose to Dominion both his relationship with Miracle and his ownership of shares in Wonder Explanation Standard VI(A) requires that Harrow disclose to Dominion icts that reasonably could be expected to interfere with his independence and objectivity Both Harrow's relationship with Miracle and his ownership of a substantial dollar amount of Wonder's shares represent potential icts of interest and must be disclosed prominently and in clear language in the research report, giving clients the ability to weigh the possible e ects of these potential icts on his analysis and conclusions (Study Session 1, Module 2.8, LOS 2-VI.(A)) Related Material https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 30/39 10/11/2018 Learning Management System SchweserNotes - Book Question #48 of 62 Which of the following actions would be a violation of the Standard VII(A) Conduct as Participants in CFA Institute Programs? A) Using the CFA designation without submitting a Professional Conduct Statement B) Exaggerating the implications of holding the CFA designation .in and paying annual dues en tre C) Misrepresenting information on the Professional Conduct Statement Explanation bo ok c Misrepresenting information on the Professional Conduct Statement is a direct violation of Standard VII(A) Conduct as Participants in CFA Institute Programs The other choices are violations of Standard VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program (Study Session 1, Module 2.9, LOS 2-VII.(A)) Related Material o m SchweserNotes - Book w w Question #49 of 62 Wes Smith, CFA, refers many of his clients to Bill Towers, CPA, for accounting services In return, w Towers performs routine services for Smith, such as his tax returns, for no charge With respect to this relationship, Smith: A) is only in violation of Standard III(B), Fair Dealing, by not putting the client rst B) is in violation of both Standard V(B) and III(B) C) must disclose to his clients that Towers provides services for Smith's personal bene t Explanation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 31/39 10/11/2018 Learning Management System According to VI(C), Referral Fees, Smith must disclose to his clients that Towers provides services for Smith's personal bene t Neither of the Standards listed in the other answers apply (Study Session 1, Module 2.8, LOS 2-VI.(C)) Related Material SchweserNotes - Book Question #50 of 62 in The following scenarios involve two analysts at Dupree Asset Management, a small New Yorkbased company with about $150 million in assets under management Dupree restricts en tre personal trading of stocks analyzed, corporate directorships, trustee positions, and other special relationships that could reasonably be considered a ict of interest with their responsibilities to their employer bo ok c Ray Bolt, CFA, is a senior investment analyst Bolt was recently elected to the board of trustees of his alma mater, Midwest University, and was appointed as the chairman of the University's endowment committee Midwest has more than $2 billion in its endowment Bolt must travel from New York to Chicago eight times a year to attend meetings of the board of trustees and endowment committee Bolt did not inform m Dupree of his involvement with Midwest University .o Wanda Delvecco, a candidate in the CFA Program, is a junior investment analyst She recently wrote a research report on Aveco Communications and recommended the stock w w for Dupree's "buy" list Delvecco bought 200 shares of Aveco stock for her personal account 12 months before she wrote her research report Over the past 12 months, the w stock's price has been in the $20-42 price range Delvecco has not informed Dupree of her ownership of Aveco stock According to CFA Institute Standards of Professional Conduct, which the following statements about Bolt and Delvecco's actions is CORRECT? A) Both Bolt and Delvecco violated the Standards B) Delvecco violated the Standards, but Bolt did not C) Neither Bolt nor Delvecco violated the Standards Explanation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 32/39 10/11/2018 Learning Management System Standard VI(A), Disclosure of Con icts, requires that Bolt inform Dupree of his involvement with Midwest University given that Bolt's new role can be expected to be time consuming and possibly a ect his responsibilities at Dupree Delvecco is required to disclose her ownership of Aveco stock before conducting the research report because such ownership could bias her objectivity in making a recommendation She should have discussed owning the stock with her supervisor before beginning to write the research report on Aveco (Study Session 1, Module 2.8, LOS 2-VI.(A)) Related Material in SchweserNotes - Book en tre Question #51 of 62 Which of the following statements is a violation of Standard VII(B) if it is included on a CFA charterholder's resume? A) My earning the CFA designation indicates my desire to maintain high standards bo ok c B) Both of these are violations of Standard VII(B) C) My earning the CFA designation indicates my superior ability Explanation o m A CFA charterholder may not make claims about how earning the designation proves superior capabilities Saying "my earning the CFA designation indicates my desire to maintain high standards" is allowed because it is a factual statement w w (Study Session 1, Module 2.9, LOS 2-VII.(B)) Related Material w SchweserNotes - Book Question #52 of 62 An analyst likes to trade options in her own account She does not deem any of her client accounts suitable for option trading When she nds a favorable options position, in accordance to Standard VI(B), Priority of Transactions, she should: A) act on it on her own behalf as she sees t B) rst tell her clients about it before acting herself https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 33/39 10/11/2018 Learning Management System C) refrain from acting until she noti es her supervisor Explanation This is not a violation of Standard VI(B), Priority of Transactions, because the investment is not suitable for her clients If the analyst believes that none of her clients should trade options, she is not obligated to advise them in this instance (Study Session 1, Module 2.8, LOS 2-VI.(B)) Related Material in SchweserNotes - Book en tre Question #53 of 62 June Carter passed Level III of the CFA examination in June but will not complete her work experience requirement until August of next year Carter can state on her resume that she: bo ok c A) will be a CFA charterholder in August of next year as long as she is on track to complete her work experience B) passed Levels I, II, and III of the CFA examination C) is a CFA in waiting m Explanation o A candidate cannot use any form of the CFA designation until receiving her charter w w (Study Session 1, Module 2, LOS 2.a) Related Material w SchweserNotes - Book Question #54 of 62 A CFA Institute member puts the following statement on her resume: "I passed each level of the CFA exam on the rst try." Is this a violation of Standard VII(B)? A) Yes, because she incorrectly refers to the CFA exam B) Yes, because saying she passed exams on the rst try is not appropriate C) No, because it is a statement of fact https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 34/39 10/11/2018 Learning Management System Explanation The statement is not a violation because it is a fact However, the member must not go on to claim superior performance (Study Session 1, Module 2.9, LOS 2-VII.(B)) Related Material SchweserNotes - Book in Question #55 of 62 An analyst has a large personal holding of a security, and he has just determined that market en tre conditions warrant selling this security The analyst contacts clients who have a position in the security and advises them to sell some or all of the security After waiting 24 hours, he sells the security from his personal accounts This is: bo ok c A) a violation of Standard III(B), Fair Dealing B) a violation of Standard VI(B), Priority of Transactions C) congruent with Standard VI(B), Priority of Transactions Explanation w w o m According to Standard VI(B), an analyst must give clients the rst opportunity to buy or sell a security before the analyst acts on his own behalf A 24-hour waiting period seems reasonable under the circumstances presented The analyst seems to have a reasonable basis, and there is no reason to believe that he is violating Standard III(B) since he contacted all of the clients who have a position in the security (Study Session 1, Module 2.8, LOS 2-VI.(B)) w Related Material SchweserNotes - Book Question #56 of 62 Andy Rock, CFA, is an analyst at Best Trade Co The company is going to announce a sell recommendation on Biomed stock in one hour Rock was a member of the team who reached the decision on Biomed Rock's wife has an account at Best Trade Co that contains Biomed stock According to the Code and Standards, trading on Rock's wife's account can begin: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 35/39 10/11/2018 Learning Management System A) only after Rock, as a bene cial owner, has given an appropriate amount of time for clients and his employer to act B) as soon as the information is disseminated to all clients C) only after the recommendation is announced to the general public Explanation bo ok c (Study Session 1, Module 2.8, LOS 2-VI.(B)) en tre in Family accounts that are client accounts should be treated like any other rm account and should neither be given special treatment nor be disadvantaged because of an existing family relationship with the member or candidate Members or candidates may undertake transactions in accounts for which they are a bene cial owner only after their clients and employers have had adequate opportunity to act on the recommendation Personal transactions include those made for the member or candidate's own account, for family (including spouse, children, and other immediate family members) accounts, and for accounts in which the member or candidate has a direct or indirect pecuniary interest, such as a trust or retirement account It could be argued that Rock is a bene cial owner of his wife's account and the reason why his wife's account should be treated like any other client account is because it does not state that Rock makes the trades in his wife's account From that we are to infer that another person other than Rock is managing his wife's account thus she should be treated like any other client Related Material m SchweserNotes - Book o Question #57 of 62 w w Lee Hurst, CFA, is an equity research analyst for a long-term investment fund His annual bonus is linked to quarterly trading pro ts Under a new policy, the quarterly assessment period is w switched to a monthly assessment period According to the Code and Standards, best practices dictate: A) keeping the policy change private as a trade secret B) updating disclosures when the policy change is implemented C) requiring Hurst to obtain permission from each client prior to implementation of the new policy Explanation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 36/39 10/11/2018 Learning Management System Standard VI(A) "Disclosures of Con icts" recognizes this policy as a potential ict of interest as members and candidates could be incentivized to favor short-term trading gains over long-term value creation Best practices dictate updating disclosures when the policy change is implemented The long-term investors should know how members and candidates are compensated, especially when there is the potential for icts of interest (Study Session 1, Module 2.8, LOS 2-VI.(A)) Related Material SchweserNotes - Book in Question #58 of 62 en tre Joe James, CAIA, CPA, is a Level II CFA candidate living in Boston In the course of his accounting practice, James often refers clients to a local law rm specializing in estate planning James does not violate client dentiality and does not receive compensation for the referral However, the law rm often gives James tickets to the theater and major sporting events bo ok c Which of the following statements regarding disclosure is CORRECT? James: A) need not disclose the bene ts received for referring clients because the clients were developed in the course of his accounting practice m B) must disclose the bene ts received for referring clients to the law rm C) need not disclose the bene ts received for referring clients because no w w Explanation o compensation is received w Standard VI(C), Referral Fees, requires members to disclose to clients and prospects any consideration or bene t received by the member or delivered to others for the recommendation of any services to a client or prospect James has received a bene t (free tickets), which must be disclosed to the clients referred by James Disclosure will allow the clients to determine any partiality of the recommendation (Study Session 1, Module 2.8, LOS 2-VI.(C)) Related Material SchweserNotes - Book Question #59 of 62 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 37/39 10/11/2018 Learning Management System Will Lambert, CFA, is a nancial analyst for O shore Investments He is preparing a purchase recommendation on Burch Corporation According to CFA Institute Standards of Professional Conduct, which of the following relationships with Burch is Lambert least likely required to disclose? A) his son-in-law was formerly employed by Burch B) he has a material bene cial ownership of Burch through a family trust C) his wife owns 2,000 shares of Burch Explanation (Study Session 1, Module 2.8, LOS 2-VI.(A)) Related Material Question #60 of 62 bo ok c SchweserNotes - Book en tre in Standard VI(A) requires that Members and Candidates fully disclose all matters which may impair their independence or objectivity or interfere with their duties to their employer, clients and prospects Bene cial ownership of shares in a rm on which a member is making investment recommendations is an example of such a matter m Ray Stone, CFA, follows the Amity Paving Company for his employer, Rubbell Securities Which o of the following scenarios is Stone least likely to have to disclose? w w A) Rubbell's broker-dealer relationship with Amity B) Stone's ownership of Amity securities w C) The fact that Stone's son worked at Amity as a laborer during the summer while in school Explanation Members are required to disclose all matters that reasonably could interfere with their objectivity Personal ownership of securities or a broker-dealer relationship with a covered rm could reasonably interfere with objectivity, but it is unlikely that a child's past employment would reasonably interfere with Stone's objectivity (Study Session 1, Module 2.8, LOS 2-VI.(A)) Related Material SchweserNotes - Book https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 38/39 10/11/2018 Learning Management System Question #61 of 62 All of the following statements in promotion of your services are in violation of CFA Institute Standards of Practice handbook EXCEPT: A) I guarantee under my management that you will receive returns in excess of the market index average B) I passed Level II of the CFA Program in 2003 C) based upon my research, you will achieve a 20% compound annual rate of return on small cap stocks over the next years .in Explanation (Study Session 1, Module 2.9, LOS 2-VII.(B)) Related Material Question #62 of 62 bo ok c SchweserNotes - Book en tre Candidates may refer to the CFA level(s) passed and the associated dates as long as a partial designation is not implied They may not guarantee or promise a given level of return .o m Standard VI(C), Referral Fees, is applicable to: A) only consideration paid in soft dollars for the recommendation of products or w w services B) all consideration received or paid for the recommendation of products or services w C) only cash consideration received for the recommendation of products or services Explanation According to Standard VI(C), Referral Fees, consideration includes all fees that are paid in cash, soft dollars, and in kind Referral fees must be disclosed to the client or employer whether the consideration is received by or paid to others for the recommendation (Study Session 1, Module 2.8, LOS 2-VI.(C)) Related Material SchweserNotes - Book https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415349/print 39/39 ... https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495 925 615 029 a3fd/practice /qbank/ 24 038 518 /quiz/ 834 1 534 9/print 22 /39 10 /11 /2 018 Learning Management System According to Standard VI(C), referral... https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495 925 615 029 a3fd/practice /qbank/ 24 038 518 /quiz/ 834 1 534 9/print 12 /39 10 /11 /2 018 Learning Management System A) in violation of Standard VII(A) the Code and Standards for discussing curriculum content... https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495 925 615 029 a3fd/practice /qbank/ 24 038 518 /quiz/ 834 1 534 9/print 33 /39 10 /11 /2 018 Learning Management System C) refrain from acting until she noti es her supervisor Explanation