Question 1

Tony White, CFA, is a citizen of the United Kingdom and has just moved to the United States. He worked as a fund manager for a London-based investment management firm, Global Pensions (GP), which is seeking to attract business from several large US pension funds. GP has sent White to New York to set up operations there. In London, White ran a hedge fund in GP’s private client subsidiary and was accustomed to taking large arbitrage positions for clients with high risk-tolerance who were seeking high returns.

White remembers that the US has some complex laws governing management of pension fund assets. He calls his friend, Joe Albert, who is a CFA candidate, and asks him to send him some information so he can become knowledgeable about his responsibilities. Albert sends White the readings from the CFA exam with the advice that these readings were just a first start and White should get more in-depth knowledge of his fiduciary responsibilities if he is to manage pension fund assets in the US. 

White is under considerable pressure from GP to earn fees from managing portfolios so he puts the materials Albert sent him in his desk and went to meet a new client, Carlos Santia, CFA. Santia is a trustee for the defined benefit pension plan of Walsh Industries (WI). Santia became a trustee because his college roommate, Matt Walsh, is president of WI. Walsh is looking to retire soon and wants to maximize the amount he’ll be able to withdraw from WI’s pension plan. Through his contacts in London, Santia has heard that White was a sharp and aggressive fund manager with a unique investment strategy. Santia believes that White is just what he’s looking for to make the returns necessary to please his friend Walsh.

White and Santia met over lunch and devised a new investment opportunity for the WI pension plan. 

• White told Santia that, in order to make the kind of returns Santia is looking for, he would need for most of the pension plan assets to be invested in White’s fund.

• White also tells Santia that his strategy also involves significant trading, but that the returns he guarantees to generate will more than cover the transaction fees.

• He also notes that his strategy sacrifices current income for growth.

The other Trustees have delegated investment authority to Santia, because he is a CFA charterholder and the only one of the Trustees with investment expertise. Santia doesn’t need to convince anyone of the prudence of his plan. 

All in all, White felt that his meeting with Santia was a good start in building a client base in the US. He was especially happy that he could continue to implement his successful hedge fund strategy. As he was shaking Santia’s hand on parting, White said, “I’m so glad to be working with another CFA. Let’s meet for lunch again soon.”

Part 1)

Which of the following Standards in the CFA Institute Code of Ethics and Standards of Professional Conduct apply specifically to Santia in his role as the trustee, with delegated investment authority, of WI’s pension fund?

A)   Standard I(B), Independence and Objectivity.

B)   Standard III(A), Loyalty, Prudence, and Care.

C)   Standard V(A), Diligence and Reasonable Basis.

D)   Standard III(D), Performance Presentation.

Part 2)

If Santia implements his plan and transfers a significant amount of WI’s pension fund assets into White’s hedge fund, which of the following principles of the New Prudent Investor Rule will least likely be violated?

A)   Trustees are allowed to delegate investment authority.

B)   Investment managers are expected to diversify to reduce risk.

C)   Excessive trading that is not warranted by the portfolio risk and return objectives should be avoided.

D)   Current income must be balanced against the need for growth.

Part 3)

Which of the following general fiduciary standards in the Prudent Investor Rule best describes the standard violated because of Santia’s friendship with Walsh?

A)   Care.

B)   Skill.

C)   Loyalty.

D)   Caution.

Part 4)

When White returned to his office, he decided he better become more knowledgeable about applicable laws and regulations if he was to manage WI pension fund assets. He also decided to get out his CFA Institute Standards of Practice Handbook for additional guidance. After reading Standard I(A) about knowledge of the law, White decided that he:

A)   did not violate the Standard because he was unaware of the applicable laws and regulations regarding pension funds.

B)   violated the Standard by not understanding the applicable laws and regulations regarding pension funds.

C)   violated the Standard because he knowingly participated in a violation of applicable laws and regulations regarding pension funds.

D)   did not violate the Standard because he did not knowingly participate in a violation of applicable laws and regulations regarding pension funds.

Part 5)

Which of the following best describes White’s responsibilities under Standard III(C), Suitability with Clients and Prospects, when meeting with Santia to discuss managing WI’s pension fund assets and prior to making an investment recommendation?

A)   Since Santia is a CFA charterholder, White could reasonably rely on Santia to understand the investment objectives of the pension fund and to reject an inappropriate investment strategy.

B)   White should have made a reasonable inquiry into the investment objectives of WI’s pension fund.

C)   White can wait until he implements his hedge fund strategy for the pension fund and calculate the actual risk and return profile of the hedge fund. Then he can compare the hedge fund profile with the investment objectives of the pension fund.

D)   It was sufficient for White to ask Santia whether the hedge fund strategy would meet the investment objectives of WI’s pension fund and rely on his response to the question.

Part 6)

Which of the following best describes White’s compliance with Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program, in his parting comments to Santia?

A)   White violated Standard VII(B). He should have said, “I’m so glad to be working with another CFA charterholder.”

B)   White violated Standard VII(B). He should have said, “I’m so glad to be working with another Chartered Financial Analyst.”

C)   White violated Standard VII(B) because he didn’t do so in a proper, dignified, and judicious manner.

D)   White complied with Standard VII(B).

[此贴子已经被作者于2008-5-26 11:45:40编辑过]

Part 1)

Which of the following Standards in the CFA Institute Code of Ethics and Standards of Professional Conduct apply specifically to Santia in his role as the trustee, with delegated investment authority, of WI’s pension fund?

A)   Standard I(B), Independence and Objectivity.

B)   Standard III(A), Loyalty, Prudence, and Care.

C)   Standard V(A), Diligence and Reasonable Basis.

D)   Standard III(D), Performance Presentation.

The correct answer was B) Standard III(A), Loyalty, Prudence, and Care.

Trustees are fiduciaries and, therefore, in addition to other applicable requirements of Standard III, must adhere to Standard III(A), Loyalty, Prudence, and Care. Under Standard III(A), Santia is required to comply with his fiduciary duty to the beneficiaries of the pension fund. He must act for the benefit of the pension fund and its beneficiaries and place their interests before his own. A fiduciary is held to a higher standard of loyalty and care than the standard to which most people are held.

This question tested from Session 2, Reading 10, LOS a

Part 2)

If Santia implements his plan and transfers a significant amount of WI’s pension fund assets into White’s hedge fund, which of the following principles of the New Prudent Investor Rule will least likely be violated?

A)   Trustees are allowed to delegate investment authority.

B)   Investment managers are expected to diversify to reduce risk.

C)   Excessive trading that is not warranted by the portfolio risk and return objectives should be avoided.

D)   Current income must be balanced against the need for growth.

The correct answer was A) Trustees are allowed to delegate investment authority.

Trustees are allowed to delegate investment authority. In fact, trustees have a duty to do so if they do not have the required level of expertise. From the perspective of the other Trustees, Santia should have the required expertise and should be knowledgeable about his responsibilities to the pension plan beneficiaries. White’s hedge fund will violate the following principles in the New Prudent Investor Rule: a) The pension fund will not be diversified because most of its assets will be in White’s fund, b) White specifically told Santia that there would be excessive trading and consequently high transaction costs, c) White also told Santia that his strategy sacrificed current income for growth rather than working to achieve a balance.

This question tested from Session 2, Reading 10, LOS a

Part 3)

Which of the following general fiduciary standards in the Prudent Investor Rule best describes the standard violated because of Santia’s friendship with Walsh?

A)   Care.

B)   Skill.

C)   Loyalty.

D)   Caution.

The correct answer was C) Loyalty.

Loyalty requires the trustee to avoid conflicts of interest by always acting exclusively in the best interest of beneficiaries. Santia’s loyalty must be to the fund itself and to the beneficiaries as a class. Santia’s friendship with Walsh is a conflict of interest that has caused him to make an investment decision for the benefit of Walsh and which is not in the best interests of the fund and all beneficiaries.

This question tested from Session 2, Reading 10, LOS a

Part 4)

When White returned to his office, he decided he better become more knowledgeable about applicable laws and regulations if he was to manage WI pension fund assets. He also decided to get out his CFA Institute Standards of Practice Handbook for additional guidance. After reading Standard I(A) about knowledge of the law, White decided that he:

A)   did not violate the Standard because he was unaware of the applicable laws and regulations regarding pension funds.

B)   violated the Standard by not understanding the applicable laws and regulations regarding pension funds.

C)   violated the Standard because he knowingly participated in a violation of applicable laws and regulations regarding pension funds.

D)   did not violate the Standard because he did not knowingly participate in a violation of applicable laws and regulations regarding pension funds.

The correct answer was B)

Under Standard I(A), Knowledge of the Law, CFA Institute members, CFA charterholders and candidates in the CFA Program are required to maintain knowledge and comply with all applicable laws, rules and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, governmental agency, regulatory organization, licensing agency, or professional association governing their professional activities. White clearly violated Standard I(A) since he did not acquire or maintain knowledge of, or comply with, US laws and regulations regarding management of pension fund assets. There is no information to support that White knowingly participated or assisted in a violation of such laws, rules, or regulations when he acted in concert with Santia.

This question tested from Session 2, Reading 10, LOS a

Part 5)

Which of the following best describes White’s responsibilities under Standard III(C), Suitability with Clients and Prospects, when meeting with Santia to discuss managing WI’s pension fund assets and prior to making an investment recommendation?

A)   Since Santia is a CFA charterholder, White could reasonably rely on Santia to understand the investment objectives of the pension fund and to reject an inappropriate investment strategy.

B)   White should have made a reasonable inquiry into the investment objectives of WI’s pension fund.

C)   White can wait until he implements his hedge fund strategy for the pension fund and calculate the actual risk and return profile of the hedge fund. Then he can compare the hedge fund profile with the investment objectives of the pension fund.

D)   It was sufficient for White to ask Santia whether the hedge fund strategy would meet the investment objectives of WI’s pension fund and rely on his response to the question.

The correct answer was B)

White has an affirmative responsibility to make a reasonable inquiry into the investment objectives of WI’s pension fund prior to making an investment recommendation. He may not rely on assurances by Santia or others that his hedge fund strategy is appropriate. White must make that determination himself in advance of implementing the strategy. Santia’s failure to inform White of the investment objectives of the pension fund, either by passively agreeing to the strategy or by actively lying about whether the hedge fund strategy met the investment objectives, does not relieve White of his responsibilities under the Standard.

This question tested from Session 2, Reading 10, LOS a

Part 6)

Which of the following best describes White’s compliance with Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program, in his parting comments to Santia?

A)   White violated Standard VII(B). He should have said, “I’m so glad to be working with another CFA charterholder.”

B)   White violated Standard VII(B). He should have said, “I’m so glad to be working with another Chartered Financial Analyst.”

C)   White violated Standard VII(B) because he didn’t do so in a proper, dignified, and judicious manner.

D)   White complied with Standard VII(B).

The correct answer was A) White violated Standard VII(B). He should have said, “I’m so glad to be working with another CFA charterholder.”

White violated Standard VII(B) because he used the designation “CFA” as a noun. It must always be used as an adjective; for example, “I am a CFA charterholder”. The CFA designation is not an acronym or generic term for analysts who have passed the CFA exam and maintain membership in the CFA Institute. The CFA mark is an exclusive, unique mark of the CFA Institute and registered with the US Patent and Trademark Office as well as similar offices in other countries. If the CFA Institute permits members and others to use the CFA mark improperly, it will not be able to maintain exclusive control of its use. CFA charterholders are not given the “CFA” but are given the right to use the CFA designation and the CFA mark. Members who are concerned about maintaining the integrity of the CFA designation must use the designation correctly and encourage others to use it correctly as well.

This question tested from Session 2, Reading 10, LOS a

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