CFA Ethical and Professional Standards Flashcards

24 sample cards from the Ethical and Professional Standards deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What does Standard IV(B) Additional Compensation Arrangements require?

   Members must not accept gifts, benefits, compensation, or consideration that competes with, or might create a conflict of interest with, their employer's interest unless they obtain written consent from all parties involved.

2. What does Standard IV(C) Responsibilities of Supervisors require?

   Members must make reasonable efforts to detect and prevent violations of applicable laws, rules, regulations, and the Code and Standards by anyone subject to their supervision or authority.

3. Under Standard IV(C), what should a supervisor do if no adequate compliance system exists?

   Decline supervisory responsibility in writing until the firm adopts reasonable procedures to allow adequate supervision. A supervisor who lacks the ability to fulfill the duty should not accept it.

4. Under Standard IV(C), what steps should a supervisor take upon learning of a possible violation?

   Initiate an investigation promptly, increase supervision or place limits on the suspected employee's activities during the investigation, and ensure the firm's compliance procedures are adequate. Relying solely on the employee's assurances is insufficient.

5. What are the three sub-sections (A–C) of Standard V: Investment Analysis, Recommendations, and Actions?

   V(A) Diligence and Reasonable Basis; V(B) Communication with Clients and Prospective Clients; V(C) Record Retention.

6. What does Standard V(A) Diligence and Reasonable Basis require?

   Members must exercise diligence, independence, and thoroughness in analyzing investments and taking actions, and must have a reasonable and adequate basis, supported by appropriate research and investigation, for any analysis, recommendation, or action.

7. Under Standard V(A), what is the responsibility when using secondary or third-party (external) research?

   Members must make reasonable efforts to determine that the third-party research is sound (review assumptions, rigor, timeliness, objectivity). If they cannot establish that the research is sound, they should not rely on it.

8. What does Standard V(B) Communication with Clients require regarding the investment process?

   Members must disclose to clients the basic format and general principles of the investment processes, promptly disclose any material changes that might affect those processes, and use reasonable judgment to identify and include the factors important to their analyses and recommendations.

9. Under Standard V(B), how must members distinguish fact from opinion?

   Members must clearly distinguish between fact and opinion in the presentation of investment analysis and recommendations, and identify the limitations and risks inherent in the investment (and significant assumptions used).

10. What does Standard V(C) Record Retention require?

    Members must develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients.

11. What is the recommended minimum record-retention period under Standard V(C) absent other regulatory requirements, and who owns the records?

    CFA Institute recommends maintaining records for at least seven years. Records created as part of professional activity are generally the property of the firm/employer, and cannot be taken when the employee leaves.

12. What are the three sub-sections (A–C) of Standard VI: Conflicts of Interest?

    VI(A) Disclosure of Conflicts; VI(B) Priority of Transactions; VI(C) Referral Fees.

13. What does Standard VI(A) Disclosure of Conflicts require?

    Members must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with their duties to clients, prospective clients, and employer. Disclosures must be prominent, in plain language, and communicate the relevant information effectively.

14. What does Standard VI(B) Priority of Transactions require?

    Investment transactions for clients and employers must have priority over investment transactions in which a member is the beneficial owner. Personal (and family/beneficial-owner) trades must come after clients and the employer have been served.

15. What does Standard VI(C) Referral Fees require?

    Members must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from or paid to others for the recommendation of products or services. Disclosure allows clients to evaluate any partiality and the full cost of services.

16. What are the two sub-sections (A–B) of Standard VII: Responsibilities as a CFA Institute Member or CFA Candidate?

    VII(A) Conduct as Participants in CFA Institute Programs; VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program.

17. What does Standard VII(A) prohibit regarding CFA Institute programs?

    Members and candidates must not engage in conduct that compromises the reputation or integrity of CFA Institute or the CFA designation, or the validity, integrity, or security of CFA Institute programs—e.g., cheating, disclosing exam content, or violating exam rules.

18. Under Standard VII(A), may a candidate express personal opinions about the CFA exam or disclose exam questions?

    They may express personal opinions about the exam or testing experience, but must not disclose, solicit, or share confidential exam information (specific questions, topics tested, or formulas/content), as this compromises exam integrity.

19. What does Standard VII(B) require regarding references to the CFA designation?

    Members and candidates must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute, holding the CFA designation, or candidacy in the CFA Program. They may state factual matters but must not imply the designation guarantees superior performance.

20. Under Standard VII(B), what is the correct usage of the 'CFA' marks?

    'CFA' and 'Chartered Financial Analyst' must be used as adjectives, never as nouns (e.g., 'she is a CFA charterholder,' not 'she is a CFA'). Only charterholders in good standing who have completed the program and met membership requirements may claim the designation.

21. Under Standard VII(B), how should someone enrolled in the CFA Program describe their status?

    They may state they are a candidate only if they are currently registered for or waiting for results of a CFA exam. There is no partial designation; one cannot cite Level I or II passage as a designation, only as a factual statement that those levels were passed.

22. What is the relationship between the Code of Ethics and the Standards of Professional Conduct?

    The Code of Ethics sets out the broad ethical principles, while the seven Standards of Professional Conduct provide the specific, enforceable rules and guidance that operationalize those principles. Together they form the Code and Standards enforced through the Professional Conduct Program.

23. What is the key distinction between 'fair dealing' (III-B) and 'equal dealing'?

    The standard requires fair, not equal, treatment. It is operationally impossible to treat all clients exactly equally (e.g., simultaneous contact), but members must not discriminate against any client and must disseminate recommendations and allocate trades in an even-handed, non-preferential manner.

24. Contrast a member's duty under Standard II(A) (material nonpublic information) when dissemination is impossible versus possible.

    If the information can be made public, the member should encourage the issuer to disclose it publicly. If public dissemination is not possible, the member must maintain confidentiality and must not trade or recommend trading on the material nonpublic information.

What this deck covers

Ethical and Professional Standards flashcards FAQ