Reading 2-IV: Standards of Professional Conduct & Guidanc 2011, face, statements, following, regarding

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Session 1: Ethical and Professional Standards
Reading 2-IV: Standards of Professional Conduct & Guidance: Duties to Employers

LOS A.: Loyalty.

 

 

Which of the following statements regarding employee/employer relationships is NOT correct?

A) An employee is someone in the service of another.

B) There must be monetary compensation for an employer/employee relationship to exist.

C) A written contract may or may not exist between employer and employee.

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Monetary compensation is not a requirement of the employee/employer relationship.

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Theresa Hatcher, CFA, is making arrangements to establish her own investment advisory business before terminating her relationship with her current employer, Elite Brokers, Inc. Elite is a small company consisting of only six investment professionals and a small support staff. According to CFA Institute Standards of Professional Conduct, which of the following activities is least likely a violation of Hatcher's duty to Elite?

A) Hatcher solicits Elite's clients before her termination of employment at Elite.

B) Hatcher engages in secret negotiations with two other investment professionals and her administrative assistant to leave Elite in order to join her new business.

C) Hatcher leases office space, furniture, and other equipment for her new business.

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Standard IV(A) permits Hatcher to make preparations to begin a new practice, such as leasing office space, furniture, and other equipment, but not to engage in the other activities that may violate her duty to employer.

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Which of the following statements is most correct concerning a member’s obligation to his or her employer under the Code and Standards?

A) Consent from the employer is necessary to permit independent practice that could result in compensation or other benefits in competition with the member's employer.

B) Members are prohibited from making arrangements or preparations to go into competitive business before terminating their relationship with their employer.

C) Members are prohibited from undertaking independent practice in competition with their employer.

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There is no blanket prohibition against independent practice in competition with a member’s employer. The member must obtain permission from the employer. Members may make preparations to go into a competitive business, but may not solicit clients of the employer as long as members are still employed by the employer.

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Which of the following activities will least likely constitute a violation of Standard IV(A), Loyalty?

A) Contacting your current clients and asking them to "come with you" when you resign from your current employer.

B) Conspiracy to bring about a mass resignation of other employees.

C) Consulting on your own time and obtaining written permission from your employer.

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Consulting on your own time and obtaining written permission from your employer does not constitute a violation of Standard IV(A).

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Bob Douglas, CFA, is considering leaving his current employer to compete in the same field. He did not sign a non-compete clause when he was hired. He may:

A) begin competing with his current employer as long as the employer has been informed of Douglas' future intentions.

B) plan and prepare to compete with his current employer, but not begin competing until his resignation is effective.

C) may not prepare to compete, begin competing, or anything related to competing with his current employer.

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Douglas may plan and prepare to compete with his current employer, but may not begin competing until his resignation is effective or he gets permission from his employer. Members must provide notification to their employer describing the types of services to be rendered, the expected duration, and compensation for the services.

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All of the following activities might constitute a violation of Standard IV(A), Loyalty to Employer, EXCEPT:

A) solicitation of the employer's clients following termination of employment.

B) misuse of confidential information.

C) solicitation of the employer's clients prior to termination of employment.

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Solicitation of the employer’s clients prior to termination of employment would constitute a violation of Loyalty to Employer, but solicitation of clients following termination would not.

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When providing outside services, a member should provide all of the following information to her current employer EXCEPT:

A) a promise to remit an agreed-upon percentage of the proceeds to the current employer.

B) the compensation she will receive.

C) the types of services to be provided.

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She should provide information about the type of services, the compensation arrangement and the expected duration of the project.

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Analysts who undertake an independent consulting practice while employed must get permission from their employer and should disclose all of the following EXCEPT:

A) the clients contact information.

B) the anticipated duration of the service to be rendered.

C) the compensation or benefit to be received.

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The Member or Candidate is not required to disclose confidential information about his independent clients.

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Isabella Travelli, CFA, is a research analyst for Worldwide Investments in Rome, Italy. Travelli was contacted by Seaside Partners of Milan, Italy, a regional brokerage firm, about doing research on companies in the beverage industry on a contract basis.

Travelli may only do the contract work:

A) after receiving consent from both Worldwide and Seaside.

B) if Worldwide does not follow the beverage industry.

C) if Worldwide has no clients in the same geographic area as Seaside.

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Standards IV(A) and IV(B) require members to obtain written consent from both their employer and the contracting party before undertaking independent practice in competition with their employer. Travelli needs to seek such consent from both entities because it does not appear that she can argue successfully that there is no competition between Worldwide and Seaside. They apparently are both research firms, industry specialization may not prevent competition, and Travelli should be devoting her time and energy to her employment, unless her employer consents to the contract work.

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A CFA Institute member, undertaking independent practice that could result in compensation or other benefit:

A) must notify his employer of the types of service to be rendered, the expected duration, and the expected compensation.

B) must notify the entities for whom he plans to undertake independent practice of the compensation he receives from his employer.

C) must notify his employer and clients of the types of service to be rendered and the expected compensation.

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According to Standard IV(A), Loyalty to Employer, a CFA Institute member, undertaking independent practice that could result in compensation or other benefit, must notify his employer of the types of service to be rendered, the expected duration, and the expected compensation.