CFA Institute Standards Quiz

Akash Gupta has just finished taking the Level II CFA exam for the second time. To protect the integrity of the exam, Gupta is careful not to discuss the exam questions with other candidates. Gupta calls his friend, a member, and contrasts his two attempts by highlighting that there were many calculation questions on derivatives in the first instance and none in the second. Later, in a public blog on investment education, Gupta shares his strong disagreement regarding CFA Institute shifting to computer-based testing. Has Gupta violated the Standards?

• No

• Yes, by highlighting that there were no calculation questions on derivatives in the recent exam

• Yes, by expressing his disagreement in a public blog regarding CFA Institute shifting to computer-based testing

Pia Nilsson is a sole proprietor investment advisor. An economic recession has reduced the number of clients she advises and caused revenues to decline. As a result, Nilsson has not paid her CFA Institute membership dues for the past two years. When a national financial publication recently interviewed Nilsson, she indicated that up until two years ago she had been a CFA charterholder and a CFA Institute member in good standing. In addition, she stated the completion of the CFA Program enhanced her portfolio management skills and enabled her to achieve superior returns on behalf of her clients. Which of Nilsson's following actions most likely violated the CFA Institute Standards of Professional Conduct?

• Nonpayment of CFA Institute membership dues

• Attributing her superior returns to participation in the CFA Program

• Indicating that being a CFA charterholder has enhanced her portfolio management skills

Max Ohn, CFA, works as a client advisor for a small firm. He has established a referral program with a real estate agency. Ohn refers clients to the real estate agency and the real estate agency refers clients to Ohn. Because the real estate agency does not compete with Ohn's employer and because the arrangement benefits Ohn's firm, he omits disclosure of the arrangement to his firm. Ohn diligently discloses the referral arrangement to all referred clients after they become firm clients. Has Ohn most likely violated the Standard relating to referral fees?

• No

• Yes, only by omitting disclosure of the arrangement to his firm

• Yes, by omitting disclosure of the arrangement to his firm and by disclosing the referral arrangement to referred clients after they become firm clients

All clients of John Chapman, CFA, are standard fee-paying clients. Chapman believes that half of his clients would benefit from premium service in exchange for higher fees. He offers the premium service only to these clients. Later that day, Chapman distributes an investment recommendation only to those clients for whom he deems it suitable. Has Chapman violated the Standard relating to fair dealing?

• No

• Yes, by offering the premium service only to clients he believes would benefit from it

• Yes, by distributing an investment recommendation only to those clients for whom he deems it suitable

Nidhi Mehta, CFA, is a fund manager at XYZ Investments. Mehta's fund delivers excellent returns for the year. A large investor in the fund offers Mehta cash compensation along with free tickets to the opening night of a sold-out opera as a reward for the fund's performance. Firm policy requires employees to inform supervisors about monetary compensation received from clients. Mehta does not inform her supervisor as she only accepts the tickets and not the cash compensation. Has Mehta violated the Standards?

• No

• Yes, the Standard relating to fair dealing

• Yes, the Standard relating to additional compensation arrangements

Michael Cane, CFA, is an investment manager. Cane's proxy voting policy includes a provision that voting proxies may not be required in all instances if they do not benefit clients. The proxy voting policy is disclosed to his clients only upon request. Has Cane most likely violated the Standard relating to loyalty, prudence and care?

• Yes, only because the voting of proxies is required in all instances

• Yes, only because the proxy voting policy is disclosed to his clients only upon request

• Yes, both because the voting of proxies is required in all instances and because the proxy voting policy is disclosed to his clients only upon request

Alice Chan, CFA, a portfolio manager, does comprehensive research and concludes that First Automobile Company's (FAC) stock is suitable for all of her firm's clients. To avoid potential conflict, Chan buys FAC's stock for other clients first and then for her sister's fee-paying account in which she has no beneficial interest. She makes no disclosure to clients about her sister's account. The price of FAC's stock declines significantly after three months, causing substantial losses to all her clients. Chan has violated the Standard relating to:

• disclosure of conflicts.

• priority of transactions.

• diligence and reasonable basis.

David Jacobs, CFA, and Megan Amari, CFA, work for Global Investment Inc. and receive fees for client referrals. Prior to signing service agreements with clients, Jacobs informs his clients about the referral fee arrangement without providing an estimated dollar value. Amari discloses all details of the arrangement, including the estimated dollar value, to her clients only after the service agreements are signed. Who has violated the Standards?

• Amari only

• Jacobs only

• Both Amari and Jacobs

Manpreet Grewal, CFA, is a wealth manager and also teaches underprivileged children at a school on holiday weekends. The school pays Grewal a nominal fee for his services. Grewal does not disclose this arrangement to his employer. Has Grewal violated the Standards?

• No

• Yes, the Standard relating to disclosure of conflicts

• Yes, the Standard relating to additional compensation arrangements

Smith is a financial analyst with XYZ Brokerage Firm. She is preparing a purchase recommendation on JNI Corporation. Which of the following situations is most likely to represent a conflict of interest for Smith that would have to be disclosed?

• Smith frequently purchases items produced by JNI.

• XYZ holds for its own account a substantial common stock position in JNI.

• Smith’s brother-in-law is a supplier to JNI.