Reading 3 & 4

Is it a violation to state the expected date when you will receive your CFA charter?


If your boss asks you to prepare a balanced portfolio for a client, but you have not performed the due diligence on the clients to fully understand their objectives, constraints, and experience, yet you still do it, are you violating the Standards?

Yes, you are violating Standard 3(C) Suitability.

Why should terminated accounts be included in a firms performance presentations?

Because it prevents an upward bias (which is not accurate) due to survivorship bias.

An analyst receiving an annual bonus based on the gross proceeds raised for an IPO he is involved in is a violation of which standard? Why?

It is a violation of Standard 1(B) Professionalism - Independence and Objectivity. The violation occurs because the bonus cannot be based on the deal amount for the analyst - it is a direct conflict of interest, because he can issue favorable reports whic

Is it a violation of the Standards for an analyst to short a stock when that analyst has a buy recommendation?


When an underwriter requires that those wishing to participate in an IPO must buy additional shares on the first day of trading, this is called a _______-____ _______________. Is it a violation of the standards? If so, which one?

This is called a tie-in agreement. It is a violation of Standard 3(B) - Fair Dealing.

A well-known CIO is featured regularly on a talk show to discuss his take on the market, which he is not paid for. However, the talk show regularly sends him gift cards and occasionally wine, which he does not disclose to his employer. Is this a violation

This is a violation of Standard 4(B) - Additional Compensation Arrangements. He must disclose these gifts to his employer.

Your investment adviser sets up an account for you with an initial IPS, but the two of you do not meet for several years and it is not updated. Is this a violation of the standards? If so, which one?

This is a violation of Standard 3(C)(1) - Suitability. This standard requires that the IPS be updated at least annually.

John Smith and you work at the same firm. He assists you in bringing on a new client, and you pay him a reward, which you do not disclose to the client. Is this a violation of the standards? If so, which one?

No, it is not a violation of the standards. If John Smith was referring the client to you from a separate firm, then it would be a referral, and that referral must be disclosed.

If your client asks you to destroy all notes regarding his account, should you do it?

No. You must maintain these records to support your investment actions and recommendations. If you destroy these records, it is a violation of Standard 5(C) - Record Retention.

You are in charge of a large account, which is continually receiving substantial deposits through wire transactions which make you suspicious. You suspect money laundering. You've discussed this several times with your boss, who fails to take action. What

Under Standard 1(A) - Knowledge of the Law, you must escalate the matter and obtain advice from compliance personnel or legal counsel.

If you develop a model in the evenings and weekends to use at your employer. When you leave, does your employer have to give you credit?

No, models developed while employed at the firm are the property of the firm, even if you worked overtime or after hours.

What is the definition of a profession?

An occupational group with a specific education/expert knowledge/framework of practice and behavior which underpins community trust, respect and recognition.

How do you professions establish trust?

1. Developing codes/standards.
2. Providing a service which exceeds the code/standards.
3. Maintaining high standards for entry.
4. Possessing a body of expert knowledge.
5. Encouraging continuing education.
6. Monitoring professional conduct.
7. Bein

Explain professionalism in investment management.

The investment management industry is still in the process of developing the framework and common understanding of what it means to be an investment professional and satisfy the definition of a profession. CFA Institute is an investment management profess

What are the expectations of investment professionals?

The CFA Code of Ethics establishes the expectations for our profession.

Describe a framework for ethical decision making.

And ethical decision-making framework has four phases:
1. Get the facts (separate out opinions).
2. Identify biases/influences that can affect thinking and decision-making ability. Get a second opinion.
3. Make a decision and act on it.
4. Assess the outc