2019 CFA level 3 qbank reading 4 asset manager code of professional conduct answers

10/11/2018 Learning Management System Kendall Kratz is consulting for Westmoreland Financial Services Kratz was brought in by William J Westmoreland IV, grandson of the company's founder, to address concerns about ethics Westmoreland Financial does not have a centralized ethics code, but rather a series of rules of conduct, most of which were instituted more than 20 years ago William Westmoreland is worried that the rm's policies have not changed with the times, so he has hired Kratz to review all of the rules and bring the rm into compliance with the Asset Manager Code of Professional Conduct As soon as he arrives at Westmoreland Financial, Kratz receives a copy of all the rules of in conduct for his review Every client receives a copy of these rules Kratz settles down in a vacant o ce to read and writes down the following en tre IPO's are distributed to about 60 percent of client accounts in proportion to account size, but the remaining 40 percent not receive any allocation All investment policy statements are reviewed on an annual basis Portfolio managers may accept any gift valued up to $200 provided that they notify their bo ok c supervisors in writing, but must receive written consent from the compliance o cer in advance before accepting anything more expensive Most stock research is done in-house About 30 percent of Westmoreland Financial clients not own bonds, but substantially all of client brokerage pays for bond m research Westmoreland Financial employees must receive preauthorization before buying stocks o in the company's portfolio model, and are not to buy stocks in advance of w w recommending them for addition to the portfolio model In a later discussion with William Westmoreland, he learns that all of the rm's trades are w conducted through Babel Brokerage, a business owned by William Westmoreland's nephew Babel provides best pricing and execution After making some recommendations regarding rules changes, Kratz is given two les to consider William Westmoreland believes the rm has not acted correctly, and wants Kratz's opinion The rst le relates to the matter of Justin Yeats, a wealthy and amboyant movie actor with more than $15 million under management at Westmoreland Financial Veronica Jung, who manages the Yeats account, wrote this account of what happened: "Yeats called me at a.m Eastern time, an hour before the market opened He wanted me to purchase stock in Flim am Films He told me that the CEO of Flim am spoke at a large fundhttps://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 1/18 10/11/2018 Learning Management System raiser the night before and provided some enticing sales gures for the rm's latest movie "Yeats, who is a bit of a stock junkie, also told me to purchase shares of Blanton Resorts He said he recently stayed in a Blanton Resort and found it o ered amenities not found elsewhere He then did some research, talking to the resort manager to assess his quali cations and entrepreurial business approach, and reviewing the company's mission statement and nancials After all that, he concluded that Blanton was hiring the right people to grow the business "After Yeats up, I looked up Flim am and discovered that the shares looked cheap I then checked news reports, but found only one story about the fund-raiser on the society page The in CEO's comments were not discussed I also did some research on Blanton and learned that the stock's volume was low, and only one analyst covered it The stock appeared very cheap relative en tre to earnings and book value I immediately recommended Blanton for addition to the portfolio model and submitted a purchase order for Blanton for all of my accounts before the market opened, knowing it would not be executed until after the stock was approved by the investment bo ok c director in the afternoon "I bought shares of Flim am for Yeats, and then picked up a few shares for myself, but I did not buy Blanton for Yeats until the larger order was submitted, because I did not want to give Yeats preferential treatment "Later that day, Agent Cornelius Fillmore of the Internal Revenue Service (IRS) called to request m Yeats' trading records for a tax audit In accordance with company policy, I refused, citing o privacy concerns Fillmore did not take the news well and said the agency's attorneys would be w w in touch After the legal threat, I reconsidered and sent him the les." The second le contains Westmoreland's disclosure policy: w All returns disclosure will be presented net of fees All returns will be calculated on a quarterly basis, with monthly results available upon request Any legal action taken against the analyst who manages the client account will be disclosed All clients will receive a summary of our investment strategy and information about the risks of the investments in their portfolios Reports will contain information about our use of soft dollars, referral fees, sales incentives, brokerage arrangements, and a breakdown of our employees' holdings of stocks' in the client's portfolio https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 2/18 10/11/2018 Learning Management System After reading the disclosure policy, Kratz recommends that the company add four items to the disclosure policy: Allocation procedures Quali cations of account managers Asset-valuation methods Proxy-voting policies Question #1 of 24 in Which of Kratz's four suggested additions to the disclosure policy goes beyond the recommendations set down by the Code? en tre A) Recommendation B) Recommendation C) Recommendation bo ok c Explanation The suggested disclosures include allocation procedures, valuations methods, and proxy policies, but not quali cations of employees Related Material w w o SchweserNotes - Book m (Study Session 2, Module 4.1, LOS 4.c) w Question #2 of 24 With regard to the Flim am stock, the Code was: A) broken when Jung purchased Flim am shares for herself, but not when she purchased the shares for Yeats or when Yeats tipped her o about Flim am B) broken when Jung purchased Flim am for herself, and when she purchased Flim am for Yeats, but not when Yeats tipped her o about Flim am C) not broken Explanation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 3/18 10/11/2018 Learning Management System A speech at a fund-raiser is most likely a public event When a reporter is there, the issue of disclosure is moot, regardless of whether the reporter thought to write about the business news Yeats' tip is legitimate, and barring any rules about preauthorization, of which we have no knowledge, Jung's purchase of Flim am shares for Yeats, then afterward for herself, seems ethically sound (Study Session 2, Module 4.1, LOS 4.c) Related Material Question #3 of 24 en tre With regard to Babel Brokerage, Westmoreland Financial: in SchweserNotes - Book A) can comply with the Code only if it receives permission from clients B) can comply with the Code only if it switches a di erent brokerage bo ok c C) is in compliance with the Code Explanation o m While the use of Babel Brokerage may not look good, the holy grail of brokerage is best pricing and execution If clients are receiving the best service possible, the fact that William Westmoreland's nephew owns the company does not put Westmoreland Financial in violation of the Code However, the rm would be wise to either switch brokerages or disclose the relationship to clients and receive permission (Study Session 2, Module 4.1, LOS 4.c) w w Related Material w SchweserNotes - Book Question #4 of 24 How many items on Westmoreland's disclosure policy are insu cient to satisfy the Code? A) item B) items C) items Explanation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 4/18 10/11/2018 Learning Management System Standard 4.A.14 says that rms must disclose all signi cant events that would help a prospective client interpret the compliant presentation thus legal disclosure should include information about action taken against the rm not just the investment advisor Firms are required to present either gross or net of fees as long as it is properly labeled so this is not a violation of the GIPS It is a recommendatin that returns should be presented gross of fees The other three statements satisfy the Code (Study Session 2, Module 4.1, LOS 4.c) Related Material in SchweserNotes - Book en tre Question #5 of 24 With regard to the Yeats account, Jung broke the Code: A) only when she sent the trading records to the IRS B) when she failed to purchase Blanton shares for Yeats in the morning, but not when bo ok c she recommended Blanton shares for purchase C) when she recommended Blanton shares for purchase, and when she failed to purchase Blanton shares for Yeats in the morning m Explanation w w w o Jung violated the investment-process rules when she recommended Blanton stock for purchase based on nothing more than a recommendation from a client and a few minutes of analysis She received a phone call an hour before the market opened, yet managed to talk to her client and research two stocks before the hour was up She did not meet the standard, "Thoroughly investigate and research di erent investment options to have a reasonable basis for a recommendation." As for Yeats' shares, while she did not have enough information to recommend Blanton, she did have Yeats' instructions to purchase the stock for himself There appear to be no insider-trading issues, as the only nonpublic information he cited was an informal conversation with the manager, which is not likely to be material So Jung should have purchased the shares for Yeats immediately, but not recommended them for anyone else until she had researched the company thoroughly Based on her reasoning for not buying Flim am, Jung was apparently allowed to purchase speci c stocks at the request of investors without submitting them for approval by the investment director, so no matter what she thought about Blanton, there was no reason to wait on buying shares for Yeats Regarding the IRS, dentiality rules not necessarily apply to o cial legal investigations (Study Session 2, Module 4.1, LOS 4.c) Related Material SchweserNotes - Book https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 5/18 10/11/2018 Learning Management System Question #6 of 24 Which of the rules Kratz wrote down is most likely in violation of the Code? A) Portfolio managers may accept any gift valued up to $200 provided that they notify their supervisors in writing, but must receive written consent from the compliance i d b f i hi i B) IPO’s are distributed to about 60 percent of client accounts in proportion to account size, but the remaining 40 percent not receive any allocation C) Most stock research is done in-house About 30 percent of Westmoreland Financial clients not own bonds, but substantially all of client brokerage pays for bond h in Explanation bo ok c en tre The Code prohibits the acceptance of gifts other than of a modest value There is no dollar amount stipulated in the standards although most likely $200 could be considered excessive The other requirements in the gift policy appear to conform The IPO allocation looks bad from the start, but the Code says investments must be fairly distributed among the accounts for which they are suitable IPO's are not for everyone, and it is certainly plausible that 40 percent of client accounts are too conservative for such securities An annual review of investment policy statements is su cient Regarding soft dollars, the Code and Standards acknowledges that not every client will bene t from the all research Such mismatches are unavoidable from a practical standpoint, and as long as brokerage is allocated toward research alone, the rm should be covered Related Material w w o SchweserNotes - Book m (Study Session 2, Module 4.1, LOS 4.c) w Question #7 of 24 Which of the following is part of the general principles of conduct related to the Asset Manager Code of Professional Conduct? A) Disclosing icts of interest B) Communicating with clients in an accurate and timely manner C) Seeking best execution Explanation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 6/18 10/11/2018 Learning Management System The general principles of conduct related to the Asset Manager Code of Professional Conduct are: Act in a professional and ethical manner at all times; Act for the bene t of the clients; Act with independence and objectivity; Act with skill, competence, and diligence; Communicate with clients in a timely and accurate manner; and Uphold the applicable rules governing capital markets The other answer choices deal with speci c sections of the Asset Manager Code but are not considered part of the general principles of conduct (Study Session 2, Module 4.1, LOS 4.b) in Related Material en tre SchweserNotes - Book bo ok c Question #8 of 24 Which of the following is NOT part of the ethical responsibilities related to the Asset Manager Code of Professional Conduct? A) Act in an objective manner m B) Do not engage in market manipulation of security prices w w Explanation o C) Communicate with clients in an accurate manner The ethical responsibilities related to the Code are: w Always act ethically and professionally; Act in the best interest of the client; Act in an objective and independent manner; Perform actions using skill, competence, and diligence; communicate accurately with clients on a regular basis; and comply with all legal and regulatory requirements Not engaging in market manipulation of security prices is part of the Investment Process and Actions section of the Code and is not considered one of the ethical responsibilities (Study Session 2, Module 4.1, LOS 4.b) Related Material SchweserNotes - Book https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 7/18 10/11/2018 Learning Management System Question #9 of 24 Which of the following is NOT part of the ethical responsibilities related to the Asset Manager Code of Professional Conduct? A) Maintain the dentiality of client information B) Always act in a professional manner C) Maintain your independence Explanation en tre Always act ethically and professionally; Act in the best interest of the client; Act in an objective and independent manner; Perform actions using skill, competence, and diligence; communicate accurately with clients on a regular basis; and comply with all legal and regulatory requirements .in The ethical responsibilities related to the Code are: bo ok c Maintaining the dentiality of client information is part of the section of the Code dealing with Loyalty and is not considered one of the ethical responsibilities (Study Session 2, Module 4.1, LOS 4.b) Related Material o m SchweserNotes - Book w w Question #10 of 24 Which of the following is NOT part of the ethical responsibilities related to the Asset Manager w Code of Professional Conduct? A) Communicating with clients on a regular basis B) Trading regarding insider information, priority of transactions, soft dollars, and best execution C) Acting in an independent manner Explanation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 8/18 10/11/2018 Learning Management System The ethical responsibilities related to the Code are: Always act ethically and professionally; Act in the best interest of the client; Act in an objective and independent manner; Perform actions using skill, competence, and diligence; communicate accurately with clients on a regular basis; and comply with all legal and regulatory requirements Trading is not speci cally mentioned in the ethical responsibilities section of the Asset Manager Code and is instead one of the six components of the Asset Manager Code speci cally regarding trading which deals with insider information, fair dealing, soft dollars, best execution, and the allocation of shares (Study Session 2, Module 4.1, LOS 4.b) in Related Material en tre SchweserNotes - Book bo ok c Question #11 of 24 Which of the following least likely represents a purpose of the Asset Manager Code (AMC)? A) Foster a culture of ethical and professional behavior throughout the rm B) Provide guidance for asset managers to provide services in a fair, professional m manner, with full disclosure w w Explanation o C) Provide a check list for how to implement the AMC w The purpose of the Asset Manager Code is to foster a culture of ethical and professional behavior throughout the rm that protects the interests of investors, protect and enhance the reputation of the rm, and provide a useful framework for asset management rms to provide services in a fair and professional manner with full disclosure (Study Session 2, Module 4.1, LOS 4.a) Related Material SchweserNotes - Book Question #12 of 24 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 9/18 10/11/2018 Learning Management System Establishing information barriers between departments would fall under which section of the Code? A) Investment Process and Actions B) Compliance and Support C) Trading Explanation Establishing information barriers falls under the Trading section of the Code and is meant to restrict the ow of material nonpublic information so as to limit the potential misuse of this information for insider trading .in (Study Session 2, Module 4.1, LOS 4.d) Related Material en tre SchweserNotes - Book Georgette Litman, CFA, is an employee of Cooper and Grey Financial Consultants She has had bo ok c the responsibility for several client portfolios over several years Litman was recently promoted to a senior management position with the idea of establishing guidelines to help ensure compliance with the Chartered Financial Analyst Institute Code and Standards and also the CFAI Asset Manager Code of Professional Conduct in the rm's portfolio management business To m help in this task of compliance, Cooper and Grey Financial Consultants has hired Jack Book to help institute a set of procedures that will help Cooper and Grey Financial Consultants achieve o their goal Book has a legal background and is a new employee at Cooper and Grey Financial w w Consultants Litman hopes that Book can help by providing a new and outside perspective to the process Although Book is not a member of CFAI and has no immediate plans for joining CFAI and taking the Level I exam, Book brings a wealth of knowledge and experience w Understandably, Book must take some time to understand many details, e.g., the reasons for a separate conduct code for asset managers that is in addition to the CFAI Code of Professional Conduct Litman wants to know what the clients of Cooper and Grey Financial Consultants are thinking and get their perspective on how the rm is doing She knows that many of the employees of Cooper and Grey Financial Consultants have close relationships with the clients and that gifts have been exchanged on occasion She asks Book to look into this activity She tells Book that it is acceptable for "token" gifts of any kind (except illegal substances) to be exchanged as long as the employees inform her of the gift She sits down with Book to compose a list of all the recent gifts that Cooper and Grey Financial Consultants employees have told her they have received https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 10/18 10/11/2018 Learning Management System She says that it is a good step to nally get them written down After they compose this list, Book is to nd out if there have been gifts that Litman was not informed as being given or received Litman is also concerned that money-laundering may be occurring through the accounts at Cooper and Grey Financial Consultants Book has a background in detecting money-laundering activities, and this was one of the reasons Litman suggested that Cooper and Grey Financial Consultants hire Book Litman asks Book to create an anti-money-laundering policy to detect and help prevent Cooper and Grey from being used for that purpose and other illegal activities Litman cautions Book that the CFAI Asset Manager Code of Professional Conduct prevents Cooper and Grey Financial Consultants from providing client information to legal authorities, so in Book will have to be careful in the design of the policies Litman tells Book that, if all goes well in this area, she will see to it that Book becomes the compliance o ce of Cooper and Grey In en tre this position, Litman says that Book will report directly to her, and she will then use this information to report directly to the CEO and board of directors Litman asks Book to help her draft procedures for monitoring performance and evaluating bo ok c managers She and Book compile a list of procedures that they plan to employ Litman recommends abiding by the Global Investment Performance Standards, or GIPS, and using fairmarket values when determining portfolio asset values Book insists that Cooper and Grey Financial Consultants should use a third party for valuing asset accounts m In addition to suggesting that an independent third party evaluate the performance of managers, Book recommends that the information disseminated to clients be reviewed by an o independent third party for accuracy and completeness Furthermore, in addition to w w maintaining adequate records, Book insists that Cooper and Grey Financial Consultants develop a plan for dealing with a natural disaster or some other event that could potentially destroy the w records Question #13 of 24 With respect to establishing compliance with the CFAI Asset Manager Code of Professional Conduct, the fact that Book is not a member of CFAI is: A) important and must be immediately remedied by his enrolling for the Level I exam B) not directly important C) important and must be immediately remedied by his joining CFAI, but he does not have to enroll for the Level I exam https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 11/18 10/11/2018 Learning Management System Explanation It is not required that a CFAI member establish compliance (Study Session 2, Module 4.1, LOS 4.d) Related Material SchweserNotes - Book Question #14 of 24 in Litman's past and future policy concerning the monitoring and control of the exchange of gifts en tre has: A) only one problem: she apparently has not prohibited cash gifts B) at least two problems: she apparently was not informed in writing and she has not prohibited cash gifts bo ok c C) only one problem: she apparently was not informed in writing Explanation w w w o m Recommend practices and procedures designed to prevent violations of the Asset Manager Code addresses loyalty to clients Loyalty to clients deal with always putting the client's interests before your own, maintaining the dentiality of client information, and not engaging in any business relationship or accepting gifts from others that could a ect your judgment and objectivity The code requires a determination of what constitutes a token gift and allowing only token gifts from outside business This is to limit the in uence of these individuals over the asset manager Cash should never be accepted, employees should always notify their supervisor in writing when they accept any gifts Litman made no reference to prohibiting cash, and the conversation implies that Litman had not been getting reports of gifts in writing (Study Session 2, Module 4.1, LOS 4.d) Related Material SchweserNotes - Book Question #15 of 24 Litman's instructions to Book concerning creating an anti-money-laundering policy to detect and help prevent Cooper and Grey from being used for that purpose and other illegal activities is: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 12/18 10/11/2018 Learning Management System A) not entirely correct in that Cooper and Grey may give necessary information to legal authorities in the event of an investigation B) not appropriate, nor is the issue a part of the CFAI Asset Manager Code of Professional Conduct C) appropriate and correct Explanation (Study Session 2, Module 4.1, LOS 4.d) SchweserNotes - Book m Question #16 of 24 bo ok c Related Material en tre in Recommend practices and procedures designed to prevent violations of the Asset Manager Code addresses loyalty to clients Loyalty to clients deal with always putting the client's interests before your own, maintaining the dentiality of client information, and not engaging in any business relationship or accepting gifts from others that could a ect your judgment and objectivity Appropriate procedures include creating an anti-money-laundering policy to detect and help prevent rms from being used for money laundering or other illegal activities and creating a procedure that delineates how dential client information should be collected, utilized, and stored The dential information policy does not preclude disseminating necessary information to legal authorities in the event of an investigation .o Litman's plan for making Book the compliance o cer at Cooper and Grey is: w w A) not appropriate because Book is new to the rm B) not appropriate because in that position, Book should be the one reporting to the w CEO and the board of directors C) not appropriate because Book is not a member of CFAI Explanation Recommend practices and procedures designed to prevent violations of the Asset Manager Code addresses compliance and support Under compliance and support, the procedures specify that a compliance o cer should be designated who reports directly to the CEO or board of directors and who is responsible for making sure compliance procedures are in place and followed There are not strict and speci c quali cations such being a member of CFAI (or not), nor how long the o cer has been with the rm (Study Session 2, Module 4.1, LOS 4.d) Related Material SchweserNotes - Book https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 13/18 10/11/2018 Learning Management System Question #17 of 24 In drafting procedures for monitoring performance and evaluating managers, the: A) suggestion by Litman is generally accepted but that of Book is a violation of the CFAI Asset Manager Code of Professional Conduct B) suggestions by both Litman and Book are generally accepted and recommended to comply with the CFAI Asset Manager Code of Professional Conduct C) suggestions by both Litman and Book are not generally accepted nor in recommended by the CFAI Asset Manager Code of Professional Conduct en tre Explanation bo ok c Recommend practices and procedures designed to prevent violations of the Asset Manager Code address performance and valuation Performance and valuation deal with reporting investment results in an accurate manner without misrepresentation and using fair-market values when determining portfolio asset values A good guideline to follow would be the Global Investment Performance Standards (GIPS®), which incorporates a high level of quality in reporting requirements Because manager compensation is sometimes based on performance results, managers may be tempted to manipulate performance results in an attempt to increase their compensation To avoid this ict of interest, procedures for valuing asset accounts should include transferring the responsibility of valuing asset accounts to an independent third party .o Related Material m (Study Session 2, Module 4.1, LOS 4.d) w w w SchweserNotes - Book Question #18 of 24 In response to Book's suggestions concerning the hiring of a third party to review information disseminated to clients and for the plan for dealing with a natural disaster, according to the CFAI Asset Manager Code of Professional Conduct, Litman should: A) adopt the plan for dealing with a natural disaster only B) adopt them both C) ignore them both Explanation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 14/18 10/11/2018 Learning Management System Recommend practices and procedures designed to prevent violations of the Asset Manager Code addresses compliance and support Compliance and support deal with: ensuring compliance with the Code and legal and regulatory requirements and appointing a compliance o cer, ensuring that portfolio information disseminated to clients is accurate and complete and reviewed by an independent third party, appropriately maintaining records, employing quali ed sta along with adequate resources, and instituting a contingency plan in the event of a natural disaster (Study Session 2, Module 4.1, LOS 4.d) Related Material in SchweserNotes - Book en tre Question #19 of 24 Stately Research is a rm specializing in providing investment research relating to individual stocks They have not implemented the Asset Manager Code of Professional Conduct and have recently been cited by regulatory authorities for de ciencies in their research Speci cally, they bo ok c have been cited for unclear language regarding price target valuation methods and their associated risks, the percentage of securities that were rated a "buy," "hold," or "sell," and failure to adequately disclose "analyst industry view" ratings which ranked their analyst's recommendations against a benchmark return such as the S&P 500 Which of the following is m least likely to be responsible for causing the security violations? o A) Lack of funding or adequate sta ng to conduct appropriate research w w B) The non-management sta acting in an unethical manner C) Inadequate technological resources to adequately research investments w Explanation Stately's lack of compliance with security laws can most likely be traced back to a lack of upper level management supporting a high level of ethical behavior Ethical leadership starts from the support of upper management which leads to adequate funding and sta ng to provide the right resources in hiring enough quali ed sta and employing the technology to adequately research and report their stock ndings (Study Session 2, Module 4.1, LOS 4.c) Related Material SchweserNotes - Book https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 15/18 10/11/2018 Learning Management System Question #20 of 24 Which of the following procedures relates speci cally to maintaining the dentiality of information under the Loyalty part of the Code? A) Maintaining records for an appropriate amount of time B) Using reasonable care and prudent judgment when managing client accounts C) Creating and implementing an anti-money laundering policy Explanation (Study Session 2, Module 4.1, LOS 4.d) Related Material m Question #21 of 24 bo ok c SchweserNotes - Book en tre in Where appropriate, rms should implement an anti-money laundering policy which falls under the Loyalty to Clients section speci cally related to preserving the dentiality of client information Developing a business continuity plan and maintaining records falls under the Compliance and Support section of the Code Using reasonable care and prudence falls under the section of the Code dealing with Investment Process and Actions .o Which of the following is part of the ethical responsibilities related to the Asset Manager Code? A) Appointing a compliance o cer w w B) Employing quali ed sta w C) Communicating with clients on a regular basis Explanation The ethical responsibilities related to the Asset Manager Code are: Always act ethically and professionally; Act in the best interest of the client; Act in an objective and independent manner; Perform actions using skill, competence, and diligence; communicate accurately with clients on a regular basis; and comply with all legal and regulatory requirements The other answer choices listed relate to the speci c section of the Code dealing with Compliance and Support (Study Session 2, Module 4.1, LOS 4.b) https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 16/18 10/11/2018 Learning Management System Related Material SchweserNotes - Book Question #22 of 24 Which of the following procedures is NOT part of the Performance and Valuation section of the Code? B) Performing stress testing on complex derivative products en tre C) Having an independent third party value client accounts .in A) Implementing the Global Investment Performance Standards (GIPS®) Explanation bo ok c The Performance and Valuation section of the Code deals with reporting the client's and manager's results in an accurate manner without misrepresentation Stress testing falls under the section of the Code dealing with Investment Process and Actions (Study Session 2, Module 4.1, LOS 4.d) Related Material o m SchweserNotes - Book w w Question #23 of 24 Which of the following statements is least accurate? Adopting the Asset Manager Code of w bene ts the rm by: A) developing trust and dence between the client and the rm B) helping investors identify rms that adhere to sound ethical practices C) bringing it into compliance with the Code of Ethics and Standards of Professional Conduct Explanation The Asset Manager Code is voluntary thus a rm is not obligated to adopt the code to be in compliance with the Code of Ethics and Standards of Professional Conduct This is in contrast to individual CFA Institute members and candidates within the rm who must adhere to the Code of Ethics and Standards of Professional Conduct (Study Session 2, Module 4.1, LOS 4.a) https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 17/18 10/11/2018 Learning Management System Related Material SchweserNotes - Book Question #24 of 24 One of the purposes of a rm adopting the Asset Manager Code is to: A) demonstrate a commitment to protect the interests of investors B) earn a higher rate of return on its clients’ investments en tre Explanation in C) increase the rm’s overall pro tability bo ok c The purpose of the Asset Manager Code is to foster a culture of ethical and professional behavior throughout the rm that protects the interests of investors, protect and enhance the reputation of the rm, and provide a useful framework for asset management rms to provide services in a fair and professional manner with full disclosure Gaining the dence of clients is a purpose of the AMC and would be part of earning higher pro ts and higher return, but the correct answer is the most direct answer o ered (Study Session 2, Module 4.1, LOS 4.a) Related Material w w w o m SchweserNotes - Book https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83415505/print 18/18 ... Module 4. 1, LOS 4. c) w Question #7 of 24 Which of the following is part of the general principles of conduct related to the Asset Manager Code of Professional Conduct? A) Disclosing icts of interest... https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice /qbank/ 24 038 518/quiz/ 8 34 15505/print 6/18 10/11/2018 Learning Management System The general principles of conduct related to the Asset Manager Code of Professional Conduct. .. the w records Question # 13 of 24 With respect to establishing compliance with the CFAI Asset Manager Code of Professional Conduct, the fact that Book is not a member of CFAI is: A) important and