CFA LV I > Ethics (summary) > Flashcards

Ethics (summary) Flashcards

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1
Q

What is ethics?

A

Shared beliefs about what constitutes good or bad behavior

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2
Q

What characterizes a profession?

A

It requires specialized knowledge and emphasizes ethical behavior

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3
Q

What is a code of ethics?

A

A written set of moral principles that may include rules or standards

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4
Q

Can something be illegal but ethical?

A

Yes, for example civil disobedience

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5
Q

Can something be legal but unethical?

A

Yes, some actions may comply with the law but still violate ethical principles

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6
Q

Do ethical standards typically exceed legal requirements?

A

Yes, ethical principles often set higher standards than laws and regulations

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7
Q

What is the suitability standard?

A

Recommend investments consistent with client risk tolerance and return objectives

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8
Q

What is the fiduciary standard?

A

Act in the best interests of the client

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9
Q

What is the purpose of the CFA Code of Ethics?

A

Promote integrity, competence, and ethical conduct in investment activities

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10
Q

What should members do when laws conflict with CFA Standards?

A

Follow the stricter law or regulation

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11
Q

What should members do if they suspect illegal activity?

A

Disassociate from the activity and report internally if appropriate

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12
Q

Can inaction be considered participation in wrongdoing?

A

Yes, failing to act may be interpreted as participation

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13
Q

Are modest gifts acceptable?

A

Yes, if they do not compromise independence or objectivity

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14
Q

What must be done if a client gives a gift for future services?

A

It must be disclosed to the employer and permission obtained

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15
Q

What is the issue with issuer-paid research?

A

It may create conflicts; flat fees are preferred

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16
Q

Does the misrepresentation standard cover all communication formats?

A

Yes, oral, written, and electronic

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17
Q

Can members guarantee investment returns?

A

No, they must not guarantee returns

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18
Q

Is plagiarism allowed under CFA Standards?

A

No, plagiarism in written or oral communications is prohibited

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19
Q

What type of information must not be misrepresented?

A

Qualifications, services, performance records, or investment characteristics

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20
Q

Does misconduct have to be illegal?

A

No, unethical conduct can violate the standard even if it is legal

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21
Q

Does a poor investment outcome automatically imply incompetence?

A

No, negative results do not necessarily imply lack of competence

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22
Q

What is material information?

A

Information that would affect a security’s price or influence an investment decision

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23
Q

What qualifies as nonpublic information?

A

Information not yet disseminated to the marketplace

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24
Q

Does information given only to analysts count as public?

A

No, it remains nonpublic until available to all investors

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25
What is mosaic theory?
Combining public information with nonmaterial nonpublic information to form an investment conclusion
26
What is transaction-based manipulation?
Trades intended to create false impressions of price movement or market activity
27
Can spreading false rumors violate this standard?
Yes, distributing misleading information is prohibited
28
How should investment decisions be evaluated for clients?
In the context of the client’s entire portfolio
29
What duty must investment professionals exercise?
Prudence, care, skill, and diligence
30
How must pooled client assets be managed?
According to the governing documents of the pool
31
What must be disclosed regarding proxy voting?
The proxy voting policy must be disclosed to clients
32
What must soft-dollar benefits do?
Benefit the client
33
Does fair dealing require identical treatment for all clients?
No, but clients must not be disadvantaged
34
How must investment recommendations be distributed?
All clients must have the opportunity to act on recommendations
35
What does fair dealing apply to?
Investment analysis, recommendations, and investment actions
36
What document is prepared at the start of an advisory relationship?
An Investment Policy Statement (IPS)
37
How often should client information be updated?
Regularly and at least annually
38
Should suitability be evaluated at the security level or portfolio level?
Portfolio level
39
What must be considered when recommending derivatives or leverage?
Whether they are suitable for the client
40
What is prohibited when presenting performance?
Misleading clients or misstating performance results
41
Can past returns be used to imply future performance?
No, past performance must not imply guaranteed future results
42
When may confidential information be disclosed?
If illegal activity is suspected, required by law, or authorized by the client
43
Does confidentiality extend to former clients?
Yes
44
Can confidential information be shared with CFA Institute during investigations?
Yes, if required during a professional conduct investigation
45
What must employees do before starting independent practice?
Notify the employer and obtain consent
46
Can employees compete with their employer while employed?
No
47
Can employees take employer records after leaving?
No, records belong to the firm
48
Can employees use general knowledge gained from prior employment?
Yes
49
When seeking new employment, what duty remains?
Act in the employer’s best interest until resignation
50
What is required before accepting outside compensation?
Written consent from all parties involved
51
What qualifies as compensation under this standard?
Gifts, benefits, or direct payments from clients or third parties
52
Is email considered acceptable written consent?
Yes
53
What must supervisors establish to prevent violations?
Compliance systems and procedures
54
What is the supervisor’s duty regarding violations?
Make reasonable efforts to detect and stop them
55
What must support investment recommendations?
A reasonable and adequate research basis
56
How should analysts treat third-party research?
They must determine its soundness and reliability
57
Do analysts have to agree with group research conclusions?
No, but the recommendation must have a reasonable basis
58
What must be disclosed to clients?
Services provided and associated costs
59
What must be distinguished in communications?
Facts versus opinions
60
What must be disclosed about investment risks?
Key risks, limitations, and important factors
61
Does the communication standard apply only to reports?
No, it applies to all client communications
62
What must records include?
The research and rationale behind investment decisions
63
Who owns the investment records?
The firm
64
Can members take records when leaving a firm?
No, without firm permission
65
What is the recommended record retention period if no regulation exists?
Seven years
66
What must disclosures allow clients to evaluate?
Biases and motivations that may impair objectivity
67
What are common examples of conflicts?
Investment banking relationships, stock ownership, board memberships
68
What conflicts must be disclosed to employers?
Ownership of securities analyzed or other pressures influencing decisions
69
Who is considered a beneficial owner?
Anyone with direct or indirect financial interest in securities
70
How should family member accounts be treated?
Like other client accounts if they are client accounts
71
When must referral fees be disclosed?
Before entering into service agreements
72
What must be disclosed regarding referral fees?
The nature and value of the compensation
73
What behaviors violate Standard VII(A): Conduct in CFA Institute Programs Members must not compromise the integrity of CFA Institute programs?
Cheating on exams or violating exam security rules
74
Can exam questions or tested topics be shared?
No
75
Is misuse of the CFA designation allowed?
No
76
Can candidates claim partial completion of the CFA designation?
No
77
Is it acceptable to say “Passed all three CFA exams on first attempt”?
Yes, if true
78
What must members do annually to maintain membership?
Submit the Professional Conduct Statement and pay dues
79
What happens if annual requirements are not met?
The member becomes inactive
80
What is the purpose of Global Investment Performance Standards (GIPS)?
Standardize performance calculation and reporting
81
Why were GIPS created?
To improve comparability and prevent misrepresentation of investment performance
82
What is a key objective of GIPS?
Global consistency in performance reporting
83
How do GIPS promote fair competition?
By ensuring comparable and transparent performance presentation
84
What misleading practices does GIPS aim to remove?
Representative accounts, survivorship bias, and inconsistent time periods
85
Who are GIPS intended to benefit?
Investment firms and their prospective and current clients
86
To whom do GIPS apply?
Investment management firms
87
What is a composite in GIPS?
A grouping of discretionary portfolios with similar investment strategies
88
What portfolios must be included in a composite?
All discretionary portfolios managed according to the strategy
89
What type of accounts must be included in composites?
Fee-paying discretionary accounts
90
When must composites be defined?
Before the reporting period
91
Why are composites important?
They ensure consistent performance comparison across time and firms
92
What is the definition of a firm under GIPS?
The distinct business entity held out to clients
93
When may an account be excluded from a composite?
If it is non-discretionary due to client restrictions
94
Is GIPS verification mandatory?
No, verification is voluntary
95
What does GIPS verification confirm?
That the firm complies with GIPS on a firm-wide basis
CFA LV I
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