Reading 2-VII: Standards of Professional Conduct & Guid 2008

cfaedu

CFA Institute Area 1-2: Ethical and Professional Standards
Session 1: Code of Ethics 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.

cfaedu

Ralph Lim and Susan Bland have both passed Level I of the CFA Program. Both are currently enrolled to sit for Level II. Lim's business card reads, "Ralph Lim, CFA Level I." Bland's resume states, "Level II Candidate in the CFA Program." According to CFA Institute Standards of Professional Conduct involving use of the professional designation:

A) Lim violated the Standard, but Bland did not.

B) Bland violated the Standard, but Lim did not.

C) Both Lim and Bland violated the Standard.

D) Neither Lim nor Bland violated the Standard.

---

Answer and Explanation

There is no designation for someone who has passed Level I, Level II, or Level III of the CFA examination. Candidates may state, however, that they have completed Level I, II, or III, as the case may be, in the CFA Program. Thus, Lim violated the Standard, but Bland did not.

cfaedu

Robert Hopkins has earned the right to use the CFA designation and wants to indicate this on his business card. According to CFA Institute Standards of Professional Conduct, which of the following is the proper use of the professional designation on his business card?

A) Robert Hopkins, cfa

B) Robert Hopkins, C.F.A.

C) Robert Hopkins, CFA degree

D) Robert Hopkins, CFA Charterholder

---

Answer and Explanation

The CFA designation should always be capitalized and shown without periods. The CFA designation should not be referred to as a degree. Placing the designation "CFA" or "CFA Charterholder" after one's name on a resume, business card, brochure, or other published material is appropriate.

cfaedu

Nichole Zeller and Randy Toffler have both passed Level II of the CFA Exam Program and have registered for Level III. Zeller circulates a resume stating that she is a candidate for the CFA designation and has passed Level II of the CFA program. Toffler circulates a resume stating that he is a CFA II. Which of the following statements is TRUE?

A) Only Zeller has violated the Code of Standards.

B) Both Zeller and Toffler have violated the Code of Standards.

C) Neither Zeller nor Toffler have violated the Code of Standards.

D) Only Toffler has violated the Code of Standards.

---

Answer and Explanation

The Code and Standards permit an individual to state that he or she is a candidate for the CFA designation as long as the person is registered for the next CFA exam. The same individual may state the fact that he or she has passed Level I or II of the CFA program. There is no partial designation, such as CFA II.

cfaedu

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

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

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

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

---

Answer and Explanation

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.

cfaedu

Judy Albert and Bob Tye, who recently started their own investment advisory business, plan to take the Level III CFA examination next year. Albert's business card reads, "Judy Albert, CFA Candidate." Tye has not put anything about the CFA on his business card. However, the firm's promotional materials describe the CFA requirements and indicate that Tye participates in the CFA program and has completed Levels I and II. According to CFA Institute Standards of Professional Conduct:

A) Tye has violated the Standards, but Albert has not.

B) Both Albert and Tye have violated the Standards.

C) Neither Albert nor Tye has violated the Standards.

D) Albert has violated the Standards but Tye has not.

---

Answer and Explanation

On letterheads and business cards and in directory listings, only the mark CFA or the words Chartered Financial Analyst should appear after the charterholder's name.

cfaedu

Janet Olson, CFA, is an analyst at Quantech Associates. Olson attended a conference at which Brian Wright presented several proprietary computerized spreadsheets that he had developed to value high-tech stocks. While at the conference, Olson copied the spreadsheets without Wrights knowledge. Later, Olson made several minor changes to Wrights initial model. After testing the revised model, Olson was impressed with the results. As inputs for the model, she used factual materials supplied by Moodys Investors Service, a recognized financial and statistical reporting service. Olson wrote a research report describing the revised model and its results and distributed the report to Quantechs clients. According to CFA Institute Standards of Professional Conduct, which of the following actions is Olson required to take? Olson is:

A) required to seek authorization from Wright to copy the spreadsheets and acknowledge Wright for developing the initial model and Moody's Investors Service as the source of the data.

B) required to acknowledge Moody's Investors Service as the source of the data but is not required to seek authorization from Wright to copy the spreadsheets or to acknowledge Wright for developing the initial model.

C) required to seek the authorization from Wright to copy the spreadsheets, acknowledge Wright for developing the initial model but is not required to acknowledge Moody's Investors Service as the source of the data.

D) not required to seek authorization from Wright to copy the spreadsheets or to acknowledge either Wright for developing the initial model or Moody's Investors Service as the source of the data.

---

Answer and Explanation

To comply with Standard I(C) Misrepresentation, Olson should have gotten the authorization from Wright to copy the spreadsheets. The prohibition against plagiarism requires that Olson identify Wright as the source of the initial model. However, the Standard permits publishing factual information from Moody's Investors Service without acknowledgment because Moody's is recognized as a source of factual materials.

cfaedu

A bank trust department has three portfolio managers (Diane Cole, Tomas Bermudez, and Anthony Ring), who have been awarded the right to use the CFA designation, and one other employee (Diane Takao), who is currently enrolled in the CFA Program. The bank wants to include information about these individuals in a brochure. According to CFA Institute Standards of Professional Conduct, which of the following is a proper use the designation in the brochure?

A) Anthony Ring is a Chartered Financial Analyst who has had 10 years of experience as a portfolio manager.

B) Tomas Bermudez is a CFA-type portfolio manager, who specializes in growth stocks.

C) Diane Cole is one of three CFAs in our trust department.

D) Diane Takao passed Level II of the CFA examination and is currently enrolled to take Level III.

---

Answer and Explanation

The CFA and Chartered Financial Analyst designations must always be used as adjectives, never as nouns or common names. The CFA designation should not be altered to create new words or phrases.

cfaedu

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, because she uses "CFA" as a noun.

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

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

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

---

Answer and Explanation

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.

cfaedu

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.

D) not a violation.

---

Answer and Explanation

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.