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According to CFA Institute Standards of Professional Conduct, which of the following is least likely a compliance procedure for maintaining independence and objectivity in making investment recommendations or taking investment action?

A) Create a restricted list so that the firm disseminates only factual information about a controversial company.

B) Maintain files to support investment recommendations.

C) Restrict special cost arrangements related to travel.

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Maintaining files to support investment recommendations is not a compliance procedure for Standard I(B): Independence and Objectivity, but it is a compliance procedure for Standard V(C): Record Retention.

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All of the following would be permitted according to the CFA Institute Standards of Professional Conduct EXCEPT:

A) token gifts received from clients.

B) air transportation paid by a corporate issuer for travel to a major metropolitan airport.

C) use of an issuer’s corporate aircraft when commercial transportation is not available.

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In order to maintain independence and objectivity, members and candidates should restrict special reimbursement arrangements concerning commercial transportation and hotel charges. Use of corporate aircraft is permitted when commercial transportation is not available.

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Susan Nielsen, CFA, is an equity research analyst on a fact-finding property tour with 6 other analysts to learn about Just Kittens, Inc. Just Kittens sells tungsten ball-bearings and has 16 warehouses, and 20 manufacturing, research, and wholesale sales outlets scattered over 8 countries – mostly emerging markets. Because of the remote location of some of the facilities, commercial travel is effectively unavailable. Just Kittens charters a jet and various busses to take the research analysts to the properties. If Nielsen accepts these accommodations, she is most likely:

A) in violation of Standard I(B) "Independence and Objectivity."

B) not in violation of Standard I(B) "Independence and Objectivity" because best practices dictate that better access to company executives is likely to lead to more accurate and timely information.

C) not in violation of Standard I(B) "Independence and Objectivity" because commercial travel is effectively unavailable.

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Nielsen is not in violation of Standard I(B) "Independence and Objectivity" because commercial travel is effectively unavailable.

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Francisco Perez, CFA, CPA, is a portfolio manager for an investment advisory firm. Due to the prominence of his position, he is often invited to attend free marketing and educational events hosted by firms which seek to inform the investment community about their investment processes. One such firm, Unlimited Horizons, has invited Perez to attend free educational events which qualify for Continuing Education credits which could help Perez maintain his CPA designation. Perez should most likely:

A) decline to attend the event as it could result in a violation of Standard I(B) "Independence and Objectivity."

B) accept the invitation as no cash compensation is involved and the primary intent is to educate and inform the investment community.

C) decline to attend the event as it could result in a violation of Standard I(A) "Knowledge of the Law."

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Perez should decline the invitation as it creates the impression of lack of independence. If he does not accept the free continuing education courses, he would have to pay for them some other way so the free courses are a form of compensation. Nothing in the vignette suggests the free classes are illegal.

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A money manager works for a full-service brokerage firm. After meeting with a new client and gathering all relevant information, the money manager says that she thinks her firm can perform all the financial services the new client needs. With respect to Standard I(C), Misrepresentation, this:

A) may not be a violation if the manager's opinion is based upon the factual information gathered.

B) may not be a violation if the representation was made orally.

C) is a violation because she cannot make statements like this under any circumstances.

There is no violation if the opinion is based upon the factual information gathered and the firm’s actual capabilities. This is true whether or not the representation was written, oral, or electronic. None of the other choices are correct.

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According to CFA Institute Standards of Professional Conduct, which of the following statements about the prohibition against plagiarism is most correct? The prohibition against plagiarism applies to written materials:

A) oral communications, and telecommunications.

B) only.

C) and oral communications only.

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The prohibition against plagiarism applies to all three areas.

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According to CFA Institute Standards of Professional Conduct, which of the following is NOT a form of plagiarism?

A) Citing specific quotations supposedly attributable to "leading analysts" and "investment experts" without specific reference.

B) Presenting statistical estimates of forecasts prepared by others with the source identified, but without qualifying statements or caveats that may have been used.

C) Using factual information published by recognized financial and statistical reporting services or similar sources without an acknowledgment.

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Standard I(C) provides that "factual information published by recognized financial and statistical reporting services or similar sources" may be used without an acknowledgment.

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Steve Barton, CFA, used to work for Advisors, Inc. After he left Advisors, Barton developed a new screening methodology for determining which stocks to include in a portfolio. Barton is on friendly terms with his former colleagues at Advisors and shares his screening methodology with them. If Advisors uses the screening methodology without notifying Barton, then:

A) Advisors must assume the responsibility of any client losses.

B) Advisors has violated Standard I(C), Misrepresentation.

C) Barton must assume the responsibility of any client losses.

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According to Standard I(C), if an analyst or firm uses the work of others, they must seek authorization from the creators. Such work includes algorithms, such as a stock screening methodology.

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Marc Randall, CFA, is an investment analyst. During a meeting with a potential client, Randall's boss states that, "You can be sure our investments will always outperform Treasury Bonds because of our fine research staff members, like Marc." Randall knows that this statement is:

A) a violation of fiduciary duties owed to clients under the Standards.

B) not in violation of the Code and Standards.

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

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Under Standard I(C), members are forbidden from guaranteeing a specific rate of return on volatile investments. Therefore, the statement is in violation of the Standard.

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A copyrighted technique for measuring the downside risk of an investment has just been revealed to the public. If an analyst adopts the technique, he must cite the use of the technique in all research reports in which the technique is used EXCEPT:

A) Neither of these answers provide grounds for an exception.

B) if the analyst does not modify the technique at all.

C) if the analyst uses reasonable care and verifies that the technique provides superior results.

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Neither of the answers in this question provide adequate grounds for not citing the source of the methodology. Although “verifying” the technique is a good idea and congruent with the Code and Standards, the analyst still needs to cite the use of the copyrighted technique even after modifying it slightly to avoid violation of Standard I(C), Misrepresentation.