Ethics questions with answers.
Q. Fundamental Asset Managers claims compliance with the CFA Institute Global Investment
Performance Standards (GIPS) and manages both discretionary and non-discretionary accounts. When
constructing a single composite for Fundamental, Juma Dzuya includes all discretionary, fee-paying
accounts with both value and growth strategies. Does the composite constructed by Dzuya most likely
meet GIPS criteria?
Yes.
No, because of non-similar investment strategies.
No, because non-discretionary accounts are not included. ANS -Solution
B is correct because a composite must include all actual, fee-paying, discretionary portfolios managed in
accordance with the same investment mandate, objective, or strategy (Standards IV Composites). By
including both the value and growth portfolios, the composite is made up of portfolios with different
investment mandates or strategies.
Q. Adira Badawi, CFA, who owns a research and consulting company, is an independent board member
of a leading cement manufacturer in a small local market. Because of Badawi's expertise in the cement
industry, a foreign cement manufacturer looking to enter the local market has hired him to undertake a
feasibility study. Under what circumstances can Badawi most likely undertake the assignment without
violating the CFA Institute Code of Ethics and Standards of Professional Conduct? If he:
makes full disclosure to both companies.
receives written permission from the local company.
signs confidentiality agreements with both companies. ANS -Solution
A is correct because making full and fair disclosure of all matters that could reasonably be expected to
impair one's independence and objectivity or interfere with respective duties to one's clients is required
by Standard VI(A)-Disclosure of Conflicts of the CFA Institute Code of Ethics and Standards of
Professional Conduct.
B is incorrect because written permission from both parties would be needed to provide full and fair
disclosure of all matters that could reasonably be expected to impair their independence and objectivity
or interfere with respective duties to their clients. The requirement to disclose under Standard VI does
not mandate that this be in writing. In fact, members and candidates have the responsibility of
, determining how often, in what manner, and in what particular circumstances the disclosure must be
made [Standard IV(B)-Additional Compensation Arrangements requires written consent].
Q. In order to provide investors with a more comprehensive view of a firm's performance, the current
GIPS standards includes new provisions related to:
various measures of risk.
all aspects of performance measurement.
the unique characteristics of each asset class. ANS -Solution
A is correct. Historically, the GIPS standards focused primarily on returns. In the spirit of fair
representation and full disclosure, and in order to provide investors with a more comprehensive view of
a firm's performance, the current GIPS standards includes new provisions related to risk
Q. In order to achieve compliance with GIPS Standards, it is recommended that firms:
adopt the broadest, most meaningful definition of the firm.
provide existing clients a compliant presentation applicable to their portfolio, at a minimum of a bi-
annual basis.
define the firm by including all geographical offices operating under the same firm name. ANS -Solution
A is correct. The Fundamentals of Compliance recommend that firms should adopt the broadest, most
meaningful definition of the firm.
B is incorrect because firms are recommended to provide each client, on an annual basis, a compliant
presentation of the composite in which the client's portfolio is included.
C is incorrect because the scope of the definition should include all geographical offices operating under
the same brand name regardless of the actual name of the individual investment management
company.
Q. Which of the following groups is most likely responsible for maintaining oversight and responsibility
for the Professional Conduct Program (PCP)?
Q. Fundamental Asset Managers claims compliance with the CFA Institute Global Investment
Performance Standards (GIPS) and manages both discretionary and non-discretionary accounts. When
constructing a single composite for Fundamental, Juma Dzuya includes all discretionary, fee-paying
accounts with both value and growth strategies. Does the composite constructed by Dzuya most likely
meet GIPS criteria?
Yes.
No, because of non-similar investment strategies.
No, because non-discretionary accounts are not included. ANS -Solution
B is correct because a composite must include all actual, fee-paying, discretionary portfolios managed in
accordance with the same investment mandate, objective, or strategy (Standards IV Composites). By
including both the value and growth portfolios, the composite is made up of portfolios with different
investment mandates or strategies.
Q. Adira Badawi, CFA, who owns a research and consulting company, is an independent board member
of a leading cement manufacturer in a small local market. Because of Badawi's expertise in the cement
industry, a foreign cement manufacturer looking to enter the local market has hired him to undertake a
feasibility study. Under what circumstances can Badawi most likely undertake the assignment without
violating the CFA Institute Code of Ethics and Standards of Professional Conduct? If he:
makes full disclosure to both companies.
receives written permission from the local company.
signs confidentiality agreements with both companies. ANS -Solution
A is correct because making full and fair disclosure of all matters that could reasonably be expected to
impair one's independence and objectivity or interfere with respective duties to one's clients is required
by Standard VI(A)-Disclosure of Conflicts of the CFA Institute Code of Ethics and Standards of
Professional Conduct.
B is incorrect because written permission from both parties would be needed to provide full and fair
disclosure of all matters that could reasonably be expected to impair their independence and objectivity
or interfere with respective duties to their clients. The requirement to disclose under Standard VI does
not mandate that this be in writing. In fact, members and candidates have the responsibility of
, determining how often, in what manner, and in what particular circumstances the disclosure must be
made [Standard IV(B)-Additional Compensation Arrangements requires written consent].
Q. In order to provide investors with a more comprehensive view of a firm's performance, the current
GIPS standards includes new provisions related to:
various measures of risk.
all aspects of performance measurement.
the unique characteristics of each asset class. ANS -Solution
A is correct. Historically, the GIPS standards focused primarily on returns. In the spirit of fair
representation and full disclosure, and in order to provide investors with a more comprehensive view of
a firm's performance, the current GIPS standards includes new provisions related to risk
Q. In order to achieve compliance with GIPS Standards, it is recommended that firms:
adopt the broadest, most meaningful definition of the firm.
provide existing clients a compliant presentation applicable to their portfolio, at a minimum of a bi-
annual basis.
define the firm by including all geographical offices operating under the same firm name. ANS -Solution
A is correct. The Fundamentals of Compliance recommend that firms should adopt the broadest, most
meaningful definition of the firm.
B is incorrect because firms are recommended to provide each client, on an annual basis, a compliant
presentation of the composite in which the client's portfolio is included.
C is incorrect because the scope of the definition should include all geographical offices operating under
the same brand name regardless of the actual name of the individual investment management
company.
Q. Which of the following groups is most likely responsible for maintaining oversight and responsibility
for the Professional Conduct Program (PCP)?
