Ethical and Professional Standards 【Reading 4】Sample following, 2012

JustasS

Which of the following is least likely to be a requirement for a firm claiming compliance with Global Investment Performance Standards (GIPS)?

A) List discontinued composites for at least five years.

B) When jointly marketing with a noncompliant firm, make sure the compliant firm is clearly defined as separate from the noncompliant firm.

C) Provide a compliant presentation only to prospects who request one.

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To comply with GIPS, a firm must provide a compliant presentation to all prospects. For all prospects who request them, the firm must also provide a composite list and composite description, and a compliant presentation and composite description for any composite included in the firm’s list.

JustasS

All of the following are titles of one of the nine sections of the Global Investment Performance Standards (GIPS) EXCEPT:

A) Implementation.

B) Real Estate.

C) Input Data.

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"Implementation" is not a name of one of the nine major sections of the GIPS standards.

JustasS

Within the Global Investment Performance Standards (GIPS) are supplemental provisions which must be applied to which of the following asset classes?

A) Private equity and real estate.

B) Emerging markets and private equity.

C) Alternative investments and derivatives.

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The GIPS standards do not address performance measurement or coverage of all asset classes, but sections 6, 7 and 8 are supplemental provisions which must be specifically applied to private equity, real estate, and wrap fee/separately managed account (SMA) portfolios.

JustasS

The nine major sections of the Global Investment Performance Standards (GIPS) least likely include:

A) required disclosures.

B) verification procedures.

C) input data requirements.

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The nine major sections of GIPS are: 0) Fundamentals of compliance; 1) Input data; 2) Calculation methodology; 3) Composite construction; 4) Disclosures; 5) Presentation and reporting; 6) Real estate; 7) Private equity; 8) Wrap fee/Separately Managed Account (SMA) portfolios.

JustasS

The section of the Global Investment Performance Standards (GIPS) that outlines defining the firm and documenting firm policies and procedures is:

A) Presentation and Reporting.

B) Fundamentals of Compliance.

C) Disclosures.

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According to Section 0, Fundamentals of Compliance, the definition of the firm is the foundation for firm-wide compliance and creates boundaries in order to determine total firm assets.

JustasS

The provisions for each section of the Global Investment Performance Standards (GIPS) are divided between:

A) requirements and recommendations.

B) minimum standards and recommendations.

C) fee-paying and non fee-paying portfolios.

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Firms must meet all requirements in order to claim compliance with the GIPS standards, and are encouraged to adopt and implement the recommendations.

JustasS

According to the Global Investment Performance Standards (GIPS), where existing laws or regulations already impose performance presentation standards, firms:

A) that comply with local requirements will be in compliance with GIPS as long as the scope and nature of the conflict is fully disclosed.

B) must comply with the GIPS standards, because they are the globally accepted standards for the investment industry.

C) are strongly encouraged to comply with the GIPS standards in addition to those local requirements.

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Firms are encouraged, though not required, to comply with both GIPS and the local requirements, and also disclose any local laws and regulations that conflict with the GIPS standard. Note that this question is not asking about local laws that are in conflict with GIPS, but simply about local laws that exist.

JustasS

The El Rey Investment Company, located in Barcelona, Spain, is in the process of adopting the Global Investment Performance Standards (GIPS) for the current fiscal year. One of the GIPS standards is in direct conflict with Spanish investment reporting regulations. In order to be in full compliance with GIPS, El Rey must:

A) comply with the local regulation and make full disclosure of the conflict.

B) comply with the GIPS standard and make full disclosure of the conflict.

C) choose either the GIPS standard or the local regulation, whichever is the more conservative approach, and make full disclosure of the conflict.

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A GIPS requirement is that firms comply with the local law and make full disclosure of the conflict.

JustasS

The Global Investment Performance Standards (GIPS) were designed to be applied with the goal of full disclosure and fair representation of investment performance in all instances EXCEPT:

A) when a composite includes nondiscretionary funds to which the GIPS are not applicable.

B) when a firm or composite has been in existence for less than five years, in which case, less stringent standards apply.

C) when applicable local laws or regulations conflict with the GIPS, in which case, firms must comply with local laws and fully disclose the conflict.

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In the case of a conflict, GIPS require that firms comply with local or country-specific laws or regulations rather than GIPS, but must fully disclose the nature and scope of the conflict.

JustasS

Which of the following statements regarding GIPS is least accurate?

A) To stay GIPS compliant, a firm must abide by GIPS guidelines even when conflicting with local or country-specific regulations.

B) A GIPS objective is to promote global “self-regulation.”

C) GIPS allows clients to have more confidence in reported performance.

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To stay GIPS compliant, firms are required to comply with local laws even if they conflict with GIPS. However, the discrepancy must be disclosed.