Learning Module 5 Ethics Application

According to Standard I(A) Knowledge of the Law, if you discover your firm is systematically overcharging clients for a pass-through expense, your best immediate action is to:

A CEO learns a long-time client account shows patterns consistent with money laundering. The CEO considers the client's status and vague descriptions of transfers credible and approves alerts without further inquiry. Under Standard I(A), this conduct is:

An adviser signs documents on behalf of clients without their signatures to avoid account overdrafts because the clients previously agreed verbally. This action most likely constitutes:

A CFA charterholder plans to give a political donation to a candidate who may influence state pension allocations and expects this to benefit her firm. The safest course under Standard I(B) Independence and Objectivity is to:

If an adviser promises clients they will 'make up' an immediate account penalty through superior investment returns from a volatile equity product, this claim is:

A firm includes a key team member in a proposal. Before contract award that person leaves the firm. Under Standard I(C) Misrepresentation, the firm should:

A CEO publicly posts on social media a specific purchase price for taking the company private before any agreement or funding exists. The CEO later admits it was a joke. This action is:

An employee participates in peaceful civil disobedience and is arrested and convicted of minor offenses unrelated to work. Under Standard I(D) Misconduct, is this conduct automatically a violation?

A newly promoted compliance officer with little experience accepts the role despite lacking authority to supervise senior family members who control the firm. Under Standard IV(C), the compliance officer should have:

An employee downloads confidential client lists from the employer before leaving and intends to notify former clients of their new role. Under Standard IV(A) Loyalty, this action is:

A portfolio manager allocates most profitable block trade allocations to accounts he and his spouse control and allocates losers to large client accounts. This practice violates:

An analyst is offered a bonus by issuers to include them in the firm's research universe and participates in selection decisions. Under Standard IV(B) Additional Compensation Arrangements, the analyst should:

A manager uses the firm's soft dollar account to pay exam fees for professional education that benefits the manager personally. Under Standard III(A), this use of client commissions is:

An analyst overhears lawyers discussing a pending acquisition in a public setting and subsequently trades the target company shares before public announcement. Under Standard II(A), the analyst's trade is:

A ratings agency changes its DSCR calculation method which materially increases ratings but does not disclose the change. Under Standard V(B), this omission is:

A manager regularly uses an error-correction policy to fabricate 'forgotten' prior orders, charging the price difference to an internal error account and then selling for a client profit. This behavior is:

An analyst joins a new firm as a supervisor but has not trained in supervisory duties. Under Standard I(E) Competence, the analyst should:

A firm claims compliance with the GIPS standards for performance presentation using preexisting composite returns, but fails to disclose that the results are from pre-registration separate accounts later folded into a registered fund. Under Standard III(D) Performance Presentation this omission is:

An adviser encourages clients to move retirement assets into an illiquid, highly concentrated leveraged local fund to capture tax benefits, without fully assessing clients' objectives or diversification needs. This likely violates:

If a firm provides a regular monthly recommendation update to all clients but offers a weekly premium report for an annual fee available to any client, this practice is:

A broker arranged false shareholders to meet a listing spread requirement and provided fake names and addresses. The broker later profited as the stock appreciated. This conduct is best described as:

A portfolio manager is offered soft-dollar research in exchange for client commissions and also a low-fee execution service where commissions count toward previous soft-dollar commitments. For accounts that prohibit soft dollars, the manager should:

An adviser receives a significant incentive for joining a startup by bringing clients with minimum commitments. Under Standard IV(A), a member considering joining should:

A manager obtains written permission from the employer to accept outside compensation from an issuer for research selection. What additional step is required under the Standards?

A manager discovers an analyst's research relied on forged documents from the issuer. The manager subsequently uses that research in portfolio decisions. Which parties likely violated Standard V(A) Diligence and Reasonable Basis?

Under Standard III(E) Preservation of Confidentiality, an employee who downloads firm client data to a personal server for telework and later has it hacked has:

A student in a CFA prep course hears classmates describe the exam difficulty and topics in general terms. Their instructor later uses these general impressions to advise future students to study broadly. Under Standard VII(A), this conduct is:

A manager desires to accept third-party-paid travel to a conference hosted by a current investment manager used by the manager's pension fund. Which acceptance is least likely to violate independence and objectivity under Standard I(B)?

An adviser recommends clients convert pension assets into self-managed funds invested in direct property without assessing clients' time, expertise, liquidity needs, or diversification. This violates which obligation most directly?

A manager books weekend travel because rates are cheaper and claims the client is billed for weekend accommodation and meals. Under Standard III(A) Loyalty, Prudence, and Care, which expenses are most likely chargeable to the municipal client?

A research analyst overhears administrators mention a possible merger in confidence. He adds the stock to his firm's restricted list and does not trade. His employer told no one else. Is his action compatible with Standard II(A) Material Nonpublic Information?

A portfolio manager records conversations with a supervisor alleging pressure to sell proprietary products and later provides those recordings to the regulator when internal complaints fail. Under Standard IV(A) Loyalty and supervisory duties, this whistleblowing is:

A firm claims GIPS compliance. Which of the following statements is true about who may claim compliance with GIPS?

A firm creates composites to present strategy returns. Which practice would violate the GIPS intent?

A trader shares imminent block trade details with friends who then buy the same securities before the fund executes its block. This behavior is:

A manager uses client commissions to pay for the firm's operating expenses. Which Standard is most directly violated?

An adviser regularly fails to update client records and only updates profiles 'when time permits.' Under Standard V(C) Record Retention, this practice is:

An adviser sells a security recommendation to a client before determining the client's risk tolerance and investment constraints. Which Standard is most directly implicated?

A manager places an account on the restricted list after learning of confidential merger talks and then trades for other firm accounts. Which action would be most consistent with Standard II(A)?

A supervisor allows a remote employee to operate with minimal oversight; the remote employee later engages in undisclosed commission-splitting with another firm. Under Standard IV(C), the supervisor is:

A manager sells a client's most liquid holdings to cover a margin shortfall after unilateral cancellation of a planned exchange because the manager forged client signatures earlier. Which Standards are implicated?

An analyst publicly states that a mutual fund 'will earn 10 percent each year' based on historical performance. This statement is:

A firm claims to fully comply with GIPS but excludes terminated accounts from composites to avoid poor returns. This practice:

A research head promotes a junior analyst who had no role in covering a client and then asks the junior to write a report on a firm the employer banks for. The junior discloses the banking relationship in the report and issues a nuanced buy. Under Standards relating to conflicts and independence, the junior should:

An employee secretly takes client funds while employed and later is prosecuted. The compliance officer ignored repeated warnings of the employee's behavior. Under the Code and Standards, who faces potential violation for failing to act?

A manager allocates trades from an omnibus block after market close, choosing allocations that favor accounts with better performance history. This selective allocation practice is:

A firm representative advertises 'completion of CFA Program' as enhancing skills and career prospects. Is this claim consistent with Standard VII(B)?

A member's CFA Institute membership lapsed for nonpayment of dues. He continues to use 'CFA' after his name on business cards. This behavior is:

A manager uses client brokerage commissions to purchase research that helps the firm but not directly the client accounts that paid commissions. Under Standard III(A) this action is:

A member refuses an employer's order to change a sell recommendation to a buy to win investment banking business. Under Standard I(B) Independence and Objectivity, the analyst should: