Reading 2-VII: Standards of Professional Conduct & Guida class, label, style, center, 2010

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Session 1: Ethical and Professional Standards
Reading 2-VII: Standards of Professional Conduct & Guidance: Responsibilities as a CFA Institute Member or CFA Candidate

LOS B.: Reference to CFA Institute, the CFA Designation, and the CFA Program.

 

 

 

When Wes Smith first joined Advisors, Inc., he was excited that all the analysts at the firm had the CFA designation. In letters to prospective clients, he states that this ensures that Advisors can provide better service than their competitors. With respect to Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program, this is:

A) a violation because he mentions the CFA designation in the letter.

B) a violation for both mentioning the CFA designation and saying the firm can guarantee better service.

C) a violation because he cannot guarantee better service.

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According to Standard VII(B), the analyst cannot guarantee better service. Smith can mention the fact that all analysts have the designation, but he is limited in what he can say with respect to this fact. He could say, for example, that this means the analysts all had to take and pass three rigorous exams.

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Which of the following statements is a violation of Standard VII(B) if it is included on a CFA charterholder’s resume?

A) Both of these are violations of Standard VII(B).

B) My earning the CFA designation indicates my superior ability.

C) My earning the CFA designation indicates my desire to maintain high standards.

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A CFA charterholder may not make claims about how earning the designation proves superior capabilities. Saying "my earning the CFA designation indicates my desire to maintain high standards" is allowed because it is a factual statement

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All of the following are required for a CFA Institute member to maintain his or her active status EXCEPT:

A) remit a completed Professional Conduct Statement on an annual basis.

B) Passing each exam in no more than two tries.

C) paying membership dues to CFA Institute on an annual basis.

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Passing each exam in two or fewer tries is not required to maintain active status as a member of the CFA Institute. CFA Institute imposes both of the other choices.

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Julie Stades retired several years ago and relinquished her membership in CFA Institute. She had the CFA designation up until then. She has decided to go back to work and puts the following statement on her resume: “I earned the CFA designation 10 years ago.” Is this a violation of Standard VII(B)?

A) No, as long as she does not indicate she currently has the designation.

B) Yes, she has used the letters "CFA" in an undignified manner.

C) Yes, because she uses "CFA" as a noun.

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Stades is allowed to state that she earned the designation as long as she does not infer that she currently has the designation. The letters “CFA” are only to be used as an adjective, and she does that.

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A CFA Institute member puts the following statement on her resume: “I passed each level of the CFA exam on the first try.” Is this a violation of Standard VII(B)?

A) Yes, because she incorrectly refers to the CFA exam.

B) No, because it is a statement of fact.

C) Yes, because saying she passed exams on the first try is not appropriate.

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The statement is not a violation because it is a fact. However, the member must not go on to claim superior performance.

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Lucy Ackert and Chris Brown prepared the following information to be included in the promotional materials of their employer, Lofton Securities.

• Lucy Ackert is one of five CFAs at Lofton Securities. She satisfied all requirements for the CFA designation in 1998.
• Chris Brown holds a CFA Level I designation, which he passed in 2001. He is registered to take the next scheduled Level II examination.

Are the promotional materials prepared by Ackert and Brown fully consistent with the Standards of Professional Conduct?

A) Ackert: Yes. Brown: No.

B) Ackert: No. Brown: No.

C) Ackert: No. Brown: Yes.

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Neither statement is fully consistent with Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program. The CFA designation must always be used as an adjective and never as a noun as Ackert used in her promotional description. Correct use of the CFA designation would be: “Lucy Ackert is one of five CFA charterholders at Lofton Securities.” No designation exists for someone who has passed Level I of the CFA examination. Thus, Brown’s statement saying that he “holds a CFA Level I designation” represents incorrect use. A correct statement would be: “Chris Brown passed Level I of the CFA examination in 2001.”

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Ted Willis received his CFA designation in 1998 and was employed as an investment counselor until 2003.  During the past several years, Willis has been out of work because of a serious illness.  He also failed to pay his annual CFA Institute dues during the current year.  Willis has now recovered and accepted a position with an investment advisory firm.  His new business card says, “Ted Willis, CFA.”  As part of his job with his new firm, Willis uses PowerPoint? to make presentations to groups of prospective clients.  He obtained some of these PowerPoint? slides from web sites, but removed the copyright notice before showing the slides to prospective clients.

Which of the following statements about Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program, and Standard I(C), Misrepresentation, is most accurate? Willis:

A) violated Standard VII(B) but he did not violate Standard I(C).

B) did not violate either Standard VII(B) or Standard I(C).

C) violated both Standard VII(B) and Standard I(C).

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Willis violated Standard VII(B) because his right to use the CFA designation was suspended when he stopped paying CFA Institute dues. Thus, he can no longer use the CFA designation on his business card. Willis also violated Standard I(C) because he was guilty of plagiarism. He inappropriately used copyrighted material, which provided the impression that such material was his own.

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Jake Miles, CFA, includes the following phrase on his business card: “Jake Miles is your trusted local CFA.” Is this a violation of Standard VII(B)?

A) Yes, because he cannot put the initials "CFA" on his business card.

B) No, because his CFA Institute membership indicates that he is indeed trustworthy.

C) Yes, because he uses CFA as a noun.

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The initials CFA cannot be used as a noun. The initials can appear on a business card but cannot be used to exaggerate the meaning or implications of membership.

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All of the following statements in promotion of your services are in violation of CFA Institute Standards of Practice handbook EXCEPT:

A) I guarantee under my management that you will receive returns in excess of the market index average.

B) based upon my research, you will achieve a 20% compound annual rate of return on small cap stocks over the next 5 years.

C) I passed Level II of the CFA Program in 2003.

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Candidates may refer to the CFA level(s) passed and the associated dates as long as a partial designation is not implied. They may not guarantee or promise a given level of return.

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An analyst has not paid her CFA Institute dues for several years but has filed a professional conduct statement annually. Which of the following statements is TRUE regarding her status with CFA Institute? The analyst’s membership is:

A) considered "inactive."

B) temporarily suspended until she pays her dues.

C) suspended and she is not considered a CFA charterholder.

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Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program, applies. In order to use the CFA designation, the member must pay annual dues and submit a yearly Professional Conduct Statement.