burning0spear

Which of the following statements is a violation of Standard VII(B) if it is included on a CFA charterholder’s resume?

A) Both of these are violations of Standard VII(B).

B) My earning the CFA designation indicates my superior ability.

C) My earning the CFA designation indicates my desire to maintain high standards.

---

A CFA charterholder may not make claims about how earning the designation proves superior capabilities. Saying "my earning the CFA designation indicates my desire to maintain high standards" is allowed because it is a factual statement

burning0spear

Member compliance on issues relating to corporate governance or to soft dollars is primarily addressed by the Standard concerning:

A) Disclosure of Referral Fees.

B) Loyalty, Prudence, and Care.

C) Disclosure of Conflicts to Clients and Prospects.

---

Fiduciary duty on issues relating to corporate governance or to soft dollars is primarily addressed by Standard III(A), Loyalty, Prudence, and Care.

burning0spear

Rickard Advisors recently had a trading error in a customer account that was subsequently covered by Rickard. The firm felt embarrassed by the disclosure of this error, and, in order to induce the client to continue its relationship, Rickard offers the client preferential access to a new issue that is expected to be “hot.” Which Standard is violated, if any?

A) The Standard concerning Fair Dealing.

B) The Standard concerning Fiduciary Duty.

C) The Standard concerning Independence and Objectivity.

---

Rickard is in violation of the Standard concerning Fair Dealing by offering the client preferential access to a “hot” new issue. There is no obvious violation of Fiduciary Duty, since there is no evidence that Rickard is placing its own financial interest ahead of the client.

burning0spear

Scott Andrews, CFA, is a stockbroker selling an oversubscribed stock issue. Which of the following best describes Andrews' actions regarding this sale? Andrews:

A) can offer this security on a prorated basis to all clients for which the security is appropriate.

B) cannot offer an oversubscribed issue of stock to any clients.

C) can only offer this security to clients for which it is appropriate on a first come first serve basis.

---

Standard III(B), Fair Dealing, applies. When new issues or secondary offerings are available or are being offered by the firm or if the firm is part of a selling syndicate, all clients for whom the security is appropriate are to be offered a chance to take part in the issue. If the issue is oversubscribed, then the issue is to be prorated to all subscribers.

burning0spear

The use of client brokerage by an investment manager to obtain certain products and services to aid the manager in the investment decision-making process is called:

A) quid pro quo practices.

B) soft dollar practices.

C) trading practices.

---

Directing client brokerage for research and/or services is called soft dollar practices.

burning0spear

Preston Partners is an investment management firm that adopted the Code and Standards as part of its policy manual. Gerald Smithson, CFA, has recently added the stock of Utah Biochemical Company and Norgood PLC to all his client's investment portfolios. Shortly afterwards Utah Biochemical and Norgood announced a merger that increased the share price of both companies. Smithson contends he saw the president of Utah Biochemical dining with the chairman of Norgood, but did not overhear their conversation. Smithson researched both companies extensively and determined that each company was a good investment. He put in a block trade for shares in each company. Preston's policies were not clear in this area as he allocated the shares by starting with his largest client accounts and working down to the small accounts. Some of Smithson's clients were very conservative personal trust accounts, others were pension funds who had aggressive investment objectives. Which standard was NOT broken?

A) Standard IV(C)--Responsibilities of Supervisors.

B) Standard III(C)-- Suitability.

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

---

Standard V(A)—Diligence and Reasonable Basis was not broken because Smithson conducted thorough and diligent research. Standard III(C)-- Suitability, Smithson failed to consider the needs of his conservative and aggressive clients. Standard IV(C)--Responsibilities of Supervisors, Preston Partners didn't have policies explaining how to allocate shares among clients.

burning0spear

Sharon Pope has been asked by the Chief Investment Officer to develop a firm-wide policy for proxy voting. Which of the following would NOT be acceptable to include in the policy statement?

A) Voting proxies may not be necessary in all instances.

B) Portfolio managers of active funds must vote in all proxies; portfolio managers of index funds should vote only when they have a definitive opinion.

C) The value of proxy voting must be maximized.

---

Proxies for stocks in passively managed funds must also be voted. A cost-benefit analysis may show that voting all proxies may not benefit all clients.

burning0spear

In the course of reviewing the Corn Co., an analyst has received comments from management that, while not meaningful by themselves, when pieced together with data he has accumulated from outside sources, lead him to recommend placing Corn Co. on his firm's sell list. What should the analyst do?

A) Show his report to his own manager and counsel for their review since this information has become material once it was combined with his analysis.

B) Not issue the report until the comments are publicly announced.

C) The comments are non material and the report can be issued as long as he maintains a file of the facts as supplied by management.

---

This is an example of the mosaic theory where separate pieces of nonmaterial information are pieced together to make an investment recommendation.

burning0spear

Sallie Reid, CFA, is asked by her boss, also a CFA charterholder, to use a research report of a competing firm, change a few details, sign it and send it to a large client. He says their firm’s researchers will draw the same conclusions but haven’t gotten to them yet. If she complies, she is doing all of the following EXCEPT:

A) obeying her boss, a CFA charterholder, but violating several of the CFA Institute Code and Standards.

B) complying with CFA Institute standards because she cannot disobey her boss.

C) violating CFA Institute standards dealing with plagiarism.

---

If Sallie complies, she is violating Standard I(C) Misrepresentation, because copying the report is plagiarism. Sallie should attempt to disassociate from any activity that she knows is in violation of the standards.

burning0spear

Sheila Stevens has accepted a one-year gift membership (valued at approximately $225) to the Women’s World Health Club from a firm to which she directs trades. She has done so without notifying her employer. Which of the following statements is least accurate?

A) This is a violation of the Code and Standards but is less serious than an identical case in which the gift was given by a client of Stevens.

B) This is a violation of the Code and Standards, because the gift is not a token amount.

C) This is a violation of the Code and Standards, because it has not been disclosed to her employer.

---

This action is clearly a violation of Standard I(B), Independence and Objectivity. Accepting a gift from a non-client is a more serious violation than accepting a gift from a client (for which a compensation arrangement would already exist), since the intent is almost certainly to gain influence over future actions of the member (e.g., increased allocation of trades).