clearlycanadian

In preparing research reports, which of the following is least likely required or recommended by the Code and Standards?

A) Send all reports to the firm's legal counsel to ensure compliance with securities laws.

B) Maintain copies of materials that were relied on in preparing the research report.

C) Attribute paraphrases and summaries of material prepared by others.

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Members do not need to send all reports to the firm’s legal counsel to ensure compliance with securities laws.

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Joni Black, CFA, works for a portfolio management firm. Black is a partner of the firm and is primarily responsible for managing several large pension plans. Black has just finished a research report in which she recommends Zeta Corporation as a “Strong Buy.” Her rating is based on solid management in a growing and expanding industry. She just handed the report to the marketing department of the firm for immediate dissemination. Upon returning to her desk she notices a news flash by CNN reporting that management for Zeta Corporation is retiring. Black wishes she did not recommend Zeta Corporation as a “Strong Buy,” but believes the corporation is still a good investment regardless of the management. What course of action for Black is best? Black:

A) may send out the report as written as long as a follow up is disseminated within a reasonable amount of time reflecting the changes in management.

B) should revise the recommendation based on this new information.

C) should report the new information to her immediate supervisor so that they can determine whether or not the marketing department should send out the report as written.

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This question is related to Standard V(B) which states that CFA Institute members should use reasonable judgment regarding the inclusion or exclusion of relevant factors in research reports. The change in management was a relevant factor and must be disclosed before dissemination.

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In the preparation of a research report, a CFA Institute member may emphasize certain matters, touch briefly on others, and omit some altogether:

A) provided that the analyst has a reasonable basis for his or her actions.

B) provided that the analyst both has a reasonable basis and is unconstrained by the Mosaic theory.

C) under no circumstances.

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According to Standard V(B), the analyst must use reasonable judgment in identifying relevant factors when communicating with clients and prospects . The Mosaic theory does not apply here.

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An analyst has several groups of clients who are categorized according to their specific needs. Compared to research reports distributed to all of the clients, reports for a specific group:

A) may generally exclude more basic facts.

B) will not be allowed because it violates the Standard III(B), Fair Dealing.

C) will definitely include more basic facts.

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According to Standard V(B), an analyst can use reasonable judgment regarding the exclusion of some facts and should include more basic facts for reports to wider audiences. The key issue is that analysts should tailor their reports to the intended audience.

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Bob Hatfield, CFA, has his own money management firm with two clients. The accounts of the two clients are equal in value. It is Hatfield’s opinion that interest rates will fall in the near future. Based upon this, Hatfield begins increasing the bond allocation of each portfolio. In order to comply with Standard V(B), Communication with Clients and Prospective Clients, the analyst needs to:

A) make sure that the change is identical for both clients.

B) perform both of these functions.

C) inform the clients of the change and tell them it is based upon an opinion and not a fact.

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According to Standard V(B), the analyst must inform the clients of the change and tell them it is based upon an opinion and not a fact. Making an identical change in two portfolios may be a violation of this standard if the needs of the clients are not identical.

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An analyst finds a stock that has had a low beta given its historical return, but its total risk has been commensurate with its return. When writing a research report about the stock for clients with well-diversified portfolios, according to Standard V(B), Communication with Clients and Prospective Clients, the analyst needs to mention:

A) both the historical beta and total risk and return.

B) the relationship of the historical total risk to return only.

C) the relationship of the historical beta and return only.

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Using reasonable judgment, an analyst may exclude certain factors from research reports. Since the report will be delivered to clients with well-diversified portfolios, total risk is not as important as beta. Given that the total risk has been only commensurate with historical return, furthermore, then the analyst is not negligent by not mentioning it.

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Roger Halpert, CFA, prepares a company research report in which he recommends a strong "buy." He has been careful to ensure that his report complies with the CFA Institute Standard on research reports. According to CFA Institute Standards of Professional Conduct, which of the following statements about how Halpert can communicate the report is most correct?

A) Halpert can transmit his report by computer on the Internet.

B) Halpert can make his report in person, by telephone, or by computer on the Internet.

C) Halpert can make his report in person.

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A report can be made via any means of communication, including in-person recommendation, telephone conversation, media broadcast, and transmission by computer such as on the Internet.

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Nicole Wise, CFA, is an analyst at Chicago Securities. She attends a meeting with management of one of the companies that she covers. During the meeting, management expresses great optimism about the company’s recent acquisition of a new business. Wise is excited about these prospects and issues a research report that states that the company is about to achieve significant success with the new acquisition. Wise has:

A) violated CFA Institute Standards of Professional Conduct because she did not check the accuracy of the statements that management made.

B) violated CFA Institute Standards of Professional Conduct because she misrepresented the optimism by turning it to certainty.

C) not violated CFA Institute Standards of Professional Conduct because she had reasonable reason to believe that the statements in her report were true.

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Standard V(B), Communication with Clients and Prospective Clients. Members must distinguish between fact and opinion in the presentation of a research report or investment recommendation. Wise violated the standard because she misrepresented management’s enthusiasm by turning it into certainty.

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Ethyl Redd recently joined Bloomington Investments as a research analyst. After spending an afternoon looking through the research team’s archives, Redd is not sure Bloomington maintains the records that support the team’s analysis and recommendations for the minimum 7-year period called for by Standard V(C), Record Retention. What is Redd’s most appropriate course of action?

A) Decline to participate in any new research until she can verify that the firm is in compliance with the Standard.

B) Keep her own copies of the relevant records and maintain them at home for a minimum 7-year holding period.

C) Review the firm’s record retention procedures with her supervisor or compliance officer to ensure that they comply with the Standard, or suggest ways to bring them into compliance.

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Standard V(C), Record Retention requires that members maintain all records supporting analysis, recommendations, actions, and all other investment related communications with clients and prospects. The recommended procedures for compliance with Standard V(C) state that the record-keeping requirement is generally the firm’s responsibility. These records are the property of the firm, so Redd keeping her own copies at home could potentially violate Standard IV(A), Loyalty. Redd’s best course of action is to review the firm’s procedures with her supervisor and recommend any improvements that are necessary to bring them into compliance with Standard V(C).

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According to CFA Institute Standards of Professional Conduct, members should do all of the following to meet the compliance procedures for having a reasonable basis for recommendations, EXCEPT:

A) analyze the client's investment needs.

B) analyze the investment's basic characteristics before recommending a specific investment to a broad client group.

C) distribute a detailed, written research report to clients with each recommendation.

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Standard V(C), Record Retention, requires that members maintain appropriate records to support the reasonableness of such recommendations or actions, but they are not required to distribute a research report with each recommendation.