Chartered Financial Analyst (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. Under Standard V(B), how must a member distinguish between fact and opinion in research reports?

   Members must clearly distinguish between fact and opinion, disclose the basic format and general principles of the investment process, and communicate significant limitations and risks associated with the investment.

2. Under Standard V(C) Record Retention, what is the CFA Institute recommended minimum record retention period absent a regulatory requirement?

   Seven years is the recommended minimum retention period for records supporting investment analysis, recommendations, and actions.

3. What are the two Standards covered under 'Conflicts and Responsibilities as a Member' (Standards VI and VII)?

   Standard VI: Conflicts of Interest, and Standard VII: Responsibilities as a CFA Institute Member or CFA Candidate.

4. List the three sub-sections of Standard VI: Conflicts of Interest.

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

5. Under Standard VI(B) Priority of Transactions, what is the required order of priority for transactions?

   Client transactions take priority over transactions for the firm/employer, which take priority over transactions for the personal benefit of the member (clients first, employer second, self last).

6. Under Standard VI(C) Referral Fees, what must a member disclose regarding compensation for client referrals?

   Members must disclose to employer, clients, and prospects any compensation, consideration, or benefit received from or paid to others for the recommendation of products or services.

7. What are the two sub-sections of Standard VII: Responsibilities as a CFA Institute Member or Candidate?

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

8. Under Standard VII(B), how must the CFA designation be used in written/oral communication?

   'CFA' or 'Chartered Financial Analyst' must be used as an adjective, never as a noun, and must not be misrepresented; e.g., 'John Doe, CFA' or 'a CFA charterholder,' not 'John is a CFA.'

9. What is GIPS and what is its primary purpose?

   The Global Investment Performance Standards (GIPS) are voluntary, ethical standards for calculating and presenting investment performance, intended to ensure fair representation and full disclosure so prospective clients can compare firms' performance.

10. In GIPS, what entity must claim compliance, and can compliance be partial?

    The firm (a distinct business entity) must claim compliance, and compliance must be on a firm-wide basis; partial compliance ('GIPS compliant for some composites') is not permitted.

11. Define a 'composite' as used in GIPS.

    A composite is an aggregation of one or more portfolios managed according to a similar investment mandate, objective, or strategy.

12. In GIPS composite construction, when must a new portfolio be included in a composite, and how are non-discretionary portfolios treated?

    New portfolios must be included on a timely, consistent basis after coming under management (per the firm's policy); non-discretionary (client-restricted) portfolios must NOT be included in composites.

13. What is the minimum number of years of GIPS-compliant performance a firm must present when it first claims compliance?

    A minimum of five years of annual GIPS-compliant performance (or since inception if shorter), then add one year each subsequent year up to a minimum of 10 years.

14. What return calculation methodology does GIPS require for portfolio performance?

    Total return using time-weighted rates of return that adjust for external cash flows (with revaluation at the time of large external cash flows).

15. In GIPS, how is composite return calculated from the individual portfolio returns within it?

    As an asset-weighted return using beginning-of-period values (or beginning values plus weighted external cash flows), so larger portfolios influence the composite return more than smaller ones.

16. What is a 'pooled fund' under GIPS, and how do GIPS pooled-fund provisions differ in presentation?

    A pooled fund is a structure (e.g., mutual fund, commingled fund) combining capital from multiple investors. GIPS has specific provisions requiring a GIPS Pooled Fund Report be provided to prospective investors, distinct from composite (separate account) reporting.

17. What is GIPS verification, who performs it, and what does it cover?

    Verification is performed by an independent third party (not self-verification) and tests whether (1) the firm complied with all composite/pooled fund construction requirements firm-wide, and (2) processes/procedures are designed to present performance in compliance with GIPS. It applies to the entire firm, not single composites.

18. Is GIPS verification required to claim compliance, and what is its key limitation?

    Verification is recommended but not required to claim compliance; verification provides assurance about firm-wide processes but does NOT ensure the accuracy of any specific composite presentation.

19. List the steps of a typical ethical decision-making framework as taught in the CFA curriculum.

    (1) Identify the relevant facts, stakeholders, duties owed, ethical principles, and conflicts of interest; (2) Consider situational influences and seek guidance/additional information; (3) Decide and act; (4) Reflect on whether the outcome was as anticipated and why.

20. In ethical decision-making, what are 'situational influences' and why do they matter?

    External factors (e.g., money, prestige, loyalty, peer pressure, time/deadlines) that can overpower well-intentioned individuals; recognizing them helps reduce their power and avoid the 'overconfidence' and 'limited information' traps.

21. Why is a structured ethical decision-making framework valuable rather than relying on intuition alone?

    It expands the perspective beyond immediate consequences, helps account for stakeholders and situational influences, encourages seeking additional information/guidance, and produces more consistent, defensible decisions under pressure.

22. When applying the Code and Standards to a case where an analyst receives a lavish, all-expenses-paid trip from a company they cover, which Standard is most directly implicated and what is the resolution?

    Standard I(B) Independence and Objectivity—accepting lavish travel can compromise independence; the analyst should pay their own way (use commercial transportation) or, if accepting modest items, disclose and ensure objectivity is not impaired.

23. How does professionalism in the investment industry relate to fiduciary duty and client trust?

    Professionalism means placing client interests first (fiduciary duty), maintaining competence and integrity, and acting with diligence—building the trust that underpins the value the investment profession provides to society and capital markets.

24. Distinguish a fiduciary duty from a suitability obligation in the context of duties to clients.

    A fiduciary duty (Standard III(A)) requires acting in the client's best interest with loyalty, prudence, and care; a suitability obligation (Standard III(C)) requires that recommendations fit the client's circumstances and IPS—fiduciary duty is the broader, higher standard of putting the client first.

What this deck covers

Ethical and Professional Standards flashcards FAQ