bapswarrior

Greg Stiles, CFA, keeps a list of his clients’ birthdays and has personally sent them a birthday card each year at the appropriate time. With respect to this action, which of the following may be a violation of Standard III(E), Preservation of Confidentiality?

A) Sending a gift along with the card.

B) Hiring a company outside the firm to perform the task.

C) The mere act of sending a birthday card each year.

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According to Standard III(E), an analyst should limit the number of persons who have access to clients’ personal information. Allowing a company outside the firm to send birthday cards could be a violation. Sending a birthday card is not a violation, nor is sending a gift of reasonable value.

bapswarrior

While servicing his clients’ accounts, an analyst who is a CFA charterholder, determines that one client is probably involved in illegal activities. According to Standard III(E), Preservation of Confidentiality, the analyst may NOT do which of the following?

A) Contact CFA Institute about the determination.

B) There are no exceptions in this list.

C) Contact the appropriate governmental authorities about the determination.

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Standard III(E) allows an analyst to reveal information about a client to CFA Institute since CFA Institute will keep the information confidential. If the analyst is reasonably certain a law has been violated, an analyst may have an obligation to report the activities to the appropriate authorities. Therefore, neither of the listed actions are exceptions from the analyst’s options.

bapswarrior

Standard III(E), Preservation of Confidentiality, applies to the information that an analyst learns from:

A) current clients, former clients, and prospects.

B) current clients and prospects only.

C) current clients and former clients only.

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According to Standard III(E), Preservation of Confidentiality, an analyst must preserve the confidentiality of information communicated by clients, former clients, and prospects.

bapswarrior

Greg Stiles, CFA, CAIA, has recently liquidated most of a client’s portfolio because the client is planning to buy a house. Stiles informs one of the brokers in his office who has his real estate license about the plans of his client. With respect to Standard III(E), Preservation of Confidentiality, this action:

A) is appropriate since Stiles keeps the information in the firm.

B) violates the Standard unless the client asks Stiles to tell the licensed salesman.

C) is appropriate since Stiles only tells a licensed salesman.

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According to Standard III(E), Preservation of Confidentiality, Stiles must keep client information confidential and limit the information to those people directly related to servicing the client. Merely working in the same firm does not qualify a person for learning about the client of a fellow analyst.

bapswarrior

Greg Stiles, CFA, may withhold from CFA Institute information about a client acquired in the regular performance of his duties:

A) for neither of the reasons listed.

B) only if Stiles is a relative of the client.

C) only if Stiles has a special confidentiality agreement with the client.

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According to Standard III(E), Preservation of Confidentiality, Stiles may not withhold information under any of the listed reasons. The reason is that CFA Institute will keep the information confidential.

bapswarrior

Trude Front, CFA, is a portfolio manager and works extensive hours. To give her a more flexible work environment, she often works from home on her personal computer and keeps client account information there – in violation of company policy. While away on travel, her home is burglarized and her computer is taken. Rather than disclose the policy violation, she does not notify her company or her clients of the contents of her computer files. Two months later the client account information is used to commit identity theft, costing her clients a total of $58,000 in fraudulent charges. Front is most likely:

A) not in violation of any Standard because the disclosure of confidential information was accidental and unavoidable.

B) in violation of Standard III(E) "Preservation of Confidentiality" for failing to follow company policies and procedures relating to electronic information and security resulting in accidental disclosure of confidential information.

C) not in violation of any Standard because the confidential information was stored on her personal computer for use for work during her personal time.

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Front violated Standard III(E) "Preservation of Confidentiality" by failing to follow company policies and procedures relating to electronic information and security resulting in accidental disclosure of confidential information.

bapswarrior

A money management firm has created a new junk-bond fund. When the firm advertised the new fund at its issuance, they used care to accurately compute the returns from the past 10 years for all assets in the fund. The firm used the current portfolio weights to determine an average annual historical return equal to 18% and claim an 18% annual historical return in their advertising literature. With respect to Standard III(D), Performance Presentation, this is:

A) in compliance.

B) a violation because the Standard prohibits computing historical returns on risky assets like junk bonds.

C) a violation because the advertisement implies the firm generated this return.

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Reporting the historical returns of all assets now in the fund introduces a survivorship bias. Also, the advertisement is misleading because the fund just came into existence and has no historical record. Thus, the firm has misled the public as to their performance history.

bapswarrior

While it would be customary to report both five-year and ten-year performance data, Seminole Equity Partners has been in existence for only eight years. Because of this, Kurt Dambach does not report ten-year data but reports for both five years and since the inception of the fund. This he notes in a footnote at the bottom of the information sheet. This action is:

A) a violation of the Standard concerning prohibition against misrepresentation.

B) a violation of the Standard concerning performance presentation.

C) in accordance with the Code and Standards since he has indicated the basis in a footnote.

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Members who communicate performance information must ensure that the information is fair, accurate, and complete. Seminole Equity’s presentation meets this standard.

bapswarrior

A money manager is meeting with a prospect. She gives the client a list of stocks and says, “These are the winners I picked this past year for my clients. Their double-digit returns indicate the type of returns I can earn for you.” The list includes stocks the manager had picked for her clients, and each stock has listed with it an accurately measured return that exceeds 10%. Is this a violation of Standard III(D), Performance Presentation?

A) Yes, unless the positions listed constitute a complete presentation (i.e., there were no stocks omitted that did not perform in the double digits).

B) No, because the manager had the historical information in writing.

C) Yes, because the manager cannot reveal historical returns of recent stock picks.

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Standard III(D) requires fair representations concerning past and potential future performance. Unless the list of the “winners” includes all the positions that the firm held, the manager is misrepresenting past performance. The following statement is questionable: “Their double-digit returns indicate the type of returns I can earn for you,” but the action of submitting a partial list is clearly a violation. The manager should have information on past performance in writing.

bapswarrior

Nancy Korthauer, CFA, has launched a new hedge fund called the Korthauer Tautology Fund and is actively soliciting clients from competitor’s firms. Client presentations are necessarily brief and often take place with the prospective client’s current investment advisor in the room. The Code and Standards require that:

A) member or candidate provide (on request) additional detail information which supports the abbreviated presentation.

B) a prospective client’s current investment advisor not participate in meetings.

C) all client presentations provide a thorough review of all elements of the investment management process. Abbreviated presentations are forbidden.

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See Standard III(D). When presentations are brief, additional detail which supports the abbreviated presentation information must be provided on request. Best practice dictates that the member or candidate should make reference to the abbreviated nature of the presentation.