Chartered Financial Analyst (CFA) Ethics Practice Test

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• Which statement about GIPS is true?
• Which CFA Institute standard is violated when a member discloses conflicts to clients but continues to act in ways that benefit the conflicts?
• A client report presents performance data with undisclosed assumptions.
• Which concept best expresses the idea that capital markets have societal value beyond the profits of participants?
• A member provides incomplete or misleading information about the qualification requirements to obtain a client’s business. Violation?
• Which CFA Institute standard is violated when a risk disclosure fails to adequately describe investment risks, misleading clients about potential losses?
• A member fails to disclose ownership of a significant stake in a client's company before recommending the stock. Violation?
• Schlumberger, the independent research analyst, uses data from public sources but does not quote sources in his reports. Which Standard has he least likely violated?
• The Fundamentals of Compliance—Recommendations section of the GIPS standards recommends what regarding verification?
• Jefferson Piedmont, CFA, a portfolio manager for Park Investments, plans to manage the portfolios of several family members in exchange for a percentage of each portfolio's profits. As his family members have extensive portfolios requiring substantial attention, they have requested that Piedmont provide the services outside his employment with Park. Piedmont notifies his employer in writing of his prospective outside employment. Two weeks later, Piedmont begins managing the family members' portfolios. By managing these portfolios, which of the following CFA Institute Standards of Professional Conduct has Piedmont violated?
• The Responsibilities as a CFA Institute Member or CFA Candidate Standard explicitly states a requirement regarding:
• Which CFA Institute standard is violated when an individual lists 'CFA' after their name on a personal website while not being a member or candidate?
• The CFA Institute Standards apply to whom?
• Scenario: A member cannot justify a recommendation because there is no supporting evidence or rationale documented. Which CFA Institute Standard is violated?
• A client is asked to approve transactions without considering the client's objectives or constraints. Which Standard is violated?
• Teresa Staal, CFA, is an investment officer in a bank trust department. She manages money for celebrities and public figures, including an influential local politician. She receives a request from the politician's political party headquarters to disclose his stock holdings. The request indicates that local law requires the disclosure. What steps should Staal most likely take to ensure she does not violate any CFA Institute Standards of Professional Conduct?
• Scenario: A member treats two clients with different risk tolerances identically in all aspects, even when one requires more conservative handling. Which CFA Institute Standard is violated?
• Under the Duties to Employers standard, when may a member accept compensation that competes with their employer's interest?
• Which Standard addresses accepting gifts or benefits that could create a conflict of interest with the employer's interests unless written consent is obtained?
• Investment professionals have specialized knowledge and often have better access to information that gives them power. Why does this justify trust?
• A firm advertises that it adheres to ethical standards but does not train staff accordingly.
• A professional states that an investment will be risk-free in a marketing presentation.
• A firm uses the CFA designation in marketing materials to imply endorsement by CFA Institute. Violation?
• Under GIPS, Section 0.B.4 recommends what regarding compliant presentations to existing clients?
• Abe Seneca, CFA, supervises a team of analysts who create index funds for institutional investors. When he makes sales demonstrations without his colleagues, the scenarios show upside-biased outcomes. Which CFA Institute Standard of Professional Conduct is least likely violated by this conduct?
• An ethical decision-making framework is most likely to do which of the following?
• Inkster should most likely do which initial step to avoid violating CFA Institute Standards before taking the trust department role?
• A fund manager included in marketing materials historical performance from a previous employer. He had permission to take the data and supporting research reports. He did not have the underlying performance data to support the historical returns. Which CFA Institute Standard is most likely violated?
• A researcher uses a client's confidential information to execute trades for their own account. Which Standard is violated?
• Scenario: An investment report highlights favorable results from a single period while omitting underperforming periods, misleading clients. Which CFA Institute Standard is violated?
• Which statement best reflects the idea that a recommendation should be tailored to each client's objectives?
• Which CFA Institute standard addresses fair dealing and the requirement to provide fair and balanced disclosure of investment risks?
• Is a code of ethics alone sufficient to promote ethical behavior in an investment firm?
• In a situation where a contract clause conflicts with a stricter local law, which CFA Standard requires compliance with the stricter law?
• Tonya Tucker, CFA, is a financial analyst at Bowron Consolidated. Bowron has numerous subsidiaries and is actively involved in mergers and acquisitions to expand its businesses. Tucker analyzes a number of companies, including Hanchin Corporation. When Tucker speaks with the CEO of Bowron, she indicates that many of the companies she has looked at would be attractive acquisition targets for Bowron. After her discussion with the CEO, Tucker purchases 100,000 shares of Hanchin Corporation at $200 per share. Bowron does not have any pre-clearance procedures, so the next time she meets with the CEO, Tucker mentions she owns shares of Hanchin. The CEO thanks her for this information but does not ask for any details. Two weeks later, Tucker sees a company-wide email from the CEO announcing Bowron's acquisition of Hanchin for $250 a share. With regards to her purchase of Hanchin stock, Tucker least likely violated the CF
• A portfolio manager fails to obtain proper consent for using a client's personal information in marketing materials.
• A bond portfolio manager approved only one below-investment-grade bond for a client with an investment-grade mandate, then added several more below-investment-grade bonds without client approval. This action most likely violated which CFA Institute Standard of Professional Conduct?
• Under the Conflicts of Interest standard, which description best captures the required disclosure?
• A gifts policy requires reporting all gifts within one week of receipt. If an analyst reports only gifts from clients and not a personal gift from a CEO, which standard is most clearly violated?
• Praful Chandarana, CFA, plans to start an IPS review business. If the regulator requires CFA charterholders to hold a financial advisor license, did Chandarana act ethically by skipping the license?
• Maria Martinez, CFA, received gifts from a CEO of a company she covers and from several clients. She reported gifts from clients within two days but not the CEO’s gift. Does this likely violate CFA Standards?
• A firm claims GIPS compliance but fails to provide required disclosures. Which Standard is violated?
• A portfolio manager's proxy voting policy requires voting proxies only when there is a cost benefit to the client. If two proxies are on the table—Barnikoff and Matric—which voting action would least likely violate CFA Institute Standard III(A) Loyalty, Prudence, and Care?
• A senior portfolio manager is promoted to supervise three portfolio managers. The firm has no written supervisory policies and procedures. According to the Standards of Practice Handbook, what is the most appropriate course of action for her?
• Bob White, a new CFA charterholder, lists on his resume:
• Which statement about the GIPS Fundamentals of Compliance is correct?
• Under a proxy voting policy that allows proxies to be voted only when there is a cost-benefit, which action aligns with Standard III(A)?
• A CFA candidate uses 'CFA' in communications before becoming a member. Which Standard is violated?
• Firms claiming GIPS compliance must make every reasonable effort to provide a compliant presentation to which group?
• Scenario: A member uses inaccurate benchmark data to claim outperformance. Which CFA Institute Standard is violated?
• A firm gives some clients priority in trade execution due to size, without justification. Violation?
• An assistant deletes emails about a major investment recommendation to avoid audits. Which Standard is violated?
• A member fails to supervise a subordinate's compliance with CFA standards.
• To claim compliance with the GIPS standards, a firm is required to:
• Scenario: A member recommends an investment that is not suitable for the client’s objective due to potential bias in the research process. Which CFA Institute Standard is violated?
• A researcher presents an investment idea without disclosing potential conflicts of interest. Violation?
• From the investor's viewpoint, unethical behavior by investment professionals most likely leads to:
• Monique Gretta, CFA, has a long-standing client relationship and provides fund managers with draft copies of her research before dissemination. Regarding her research, which choice describes the least likely CFA Ethics violation?
• Before results are released, how should a CFA candidate refer to themselves?
• In Mbuwanga's promotion of Kenyan REITs without tailoring to individual client objectives, which CFA Institute Standard is most likely violated?
• Which of the following statements about GIPS verification is correct?
• In implementing GIPS in a country, which entity is least involved?
• Which CFA Institute Standard includes a sub-section titled 'Communication with Clients and Prospective Clients'?
• Which CFA Institute standard is violated when a firm stores client data in an unsecured device and shares it without authorization?
• Which term best describes the minimally acceptable behaviors expected of a member of a societal group?
• Lee Chu, CFA candidate, develops a back-tested model and asks marketing to remove the top holdings after concerns about replication. Which action is least likely to result in a Code and Standards violation for Chu?
• A member fails to disclose ownership in a client’s company when making recommendations. Violation?
• A client requests access to performance data that includes undisclosed assumptions.
• In the scenario involving Lawrence Hall and Nancy Bishop, did Hall most likely violate any CFA Institute Standards of Professional Conduct?
• Which standard most directly addresses the ethical treatment of clients when a fund manager prioritizes personal benefits over client objectives, as in a case involving a high-dividend, but unsuitable investment?
• If Norman Bosno agrees to a two million dollar investment with a quid pro quo bonus and the investment is deemed too risky, which CFA Standard is least likely to be violated?
• Which statement about why the GIPS standards were created is least likely correct?
• Which statement about using the CFA designation is most consistent with CFA Institute standards?
• GIPS compliance requires presenting a minimum of how many years of performance data?
• Regarding Gretta’s practice of sharing draft research with fund managers before dissemination, which CFA Standard is most directly implicated if not all clients are given the same access?
• A member's news release implies endorsement by the CFA Institute.
• Abasi Hasina, CFA, signed a non-compete clause as a condition of employment. Years later, he takes a similar role in a country where non-compete agreements are illegal. Did Hasina most likely violate the CFA Institute Code of Ethics and Standards of Professional Conduct?
• A firm offers a compensation incentive to advisers without fully disclosing the terms to clients. Violation?
• Alexandra Smirnov, CFA, recommends Springwell Pension Fund hire Newday Managers based on meetings, and declines an introduction fee. Which CFA Institute Standard did Smirnov most likely violate?
• From an investor point of view, unethical behavior by investment professionals can most likely lead to which outcome?
• The Duties to Employers standard requires that members and candidates must not do which of the following?
• Scenario: A client’s confidential information is shared with a third party without consent for marketing purposes. Which CFA Institute Standard is violated?
• A client asks for performance information; the response uses incomplete disclosures and misleads. Which Standard is violated?
• A member uses a non-public rumor as the basis for a recommendation to a client.
• Which statement about the CFA designation and its use is most consistent with CFA Institute standards?
• Which CFA Institute Standard is violated when a firm prices trades to favor a particular client without justification?
• A firm suggests a risk-free investment to clients when such a product does not exist. Violation?
• A research analyst discovers a colleague has a stake in a company under consideration for a client; the analyst should:
• If a client could prove the firm marketed its code of ethics as putting clients first and the adviser violated that code, what could be the outcome?
• A member uses a client's capital for personal use without consent. Which CFA Institute standard is violated?
• A recommendation is unsuitable for a client's investment objectives and risk tolerance. Which Standard is violated?
• Which CFA Institute Standard is violated when a portfolio manager trades on material nonpublic information about a company's earnings before the information is released to the public?
• A firm offers a performance fee that is not adequately disclosed or is contingent on performance. Violation?
• Which statement best explains why the GIPS standards were created?
• If a CFA candidate lists “CFA, 2013, CFA Society of Pittsburgh” on a resume, is this compliant with CFA Institute Standards?
• Based only on a degree and many years of experience, could the investment fund manager claim to be part of a profession?
• A compliance approach to decision making is likely to do which of the following compared with an ethical decision-making approach?
• The relationship between an investment professional and clients is predominately based on trust mainly because the professional has specialized knowledge leading to more power. Which option best supports this statement?
• A firm fails to retain comprehensive client communications and trade records for the required period. Violation?
• A firm deletes emails about a major investment recommendation to avoid compliance oversight. Which Standard is violated?
• What three criteria must be met for a financial activity to be considered a profession?
• Which statement best represents Standard V(B) – Communication with Clients and Prospective Clients?
• Scenario: A firm engages in a compensated arrangement with a fund sponsor but fails to disclose the relationship to clients. Which CFA Institute Standard is violated?
• A CFA member accepts an expensive gift from a broker-dealer that could influence their judgment. Which Standard is violated?
• Which CFA Institute standard is violated when a supervisor disregards a subordinate's report of unethical trading?
• A trader gives a favored client preferential execution price without justification.
• In a discretionary account scenario involving proxy voting and the use of a broker with favorable terms, which conclusion best reflects Standard III(A)?
• If a regulator requires advisers to merely consider suitability, this would primarily establish which type of standard?
• When should disclosure of referral fees be made?
• A member accepts gifts from a client that could influence investment recommendations. Violation?
• Which CFA Standard requires members to treat all clients fairly when disseminating investment recommendations or making material changes to prior recommendations?
• An investment firm presents performance data selectively, omitting unfavorable periods and risks. Violation?
• A firm claims to adhere to ethical standards but lacks staff training.
• What is the most appropriate action regarding a proxy voting policy?
• Which CFA Institute standard is implicated when risk disclosures misstate the potential losses or omit material risks?
• Which statement is correct under the Code and Standards regarding independent practice?
• Which CFA Institute standard is violated when a firm is required to disclose a material conflict but fails to do so; this affects client decisions?
• Heidi Katz is a CFA candidate and an analyst at a pension consulting firm. Her father is a major shareholder and managing director at Saturn Partners, a large hedge fund. When assisting in an alternative manager search for a pension client, Katz plans to recommend Saturn's market-neutral strategy because she feels it meets all of the pension plan's criteria. Given this situation, the best course of action for Katz is to:
• A firm reports GIPS-compliant performance but fails to provide required disclosures. Which Standard is violated?
• Which category completely represents an ethical principle of CFA Institute as outlined in the Standards of Practice Handbook?
• The term 'Representative Accounts' in performance reporting refers to:
• Which CFA Institute standard is violated when an advisor takes on an outside business activity that conflicts with clients and fails to disclose it?
• Which statement about independence and objectivity is true for CFA Institute members and candidates?
• Which CFA Institute standard is violated when a firm accepts referral fees from a broker for directing clients there without informing the clients?
• A member uses a personal relationship to influence a client's investment decision without disclosure. Violation?
• According to GIPS, for periods beginning on or after January 1, 2011, the aggregate fair value of total firm assets most likely includes all:
• Which CFA Institute standard is violated when a member exaggerates credentials on a resume to obtain employment?
• Scenario: A broker ignores a client’s unique constraints and recommends the same product to all clients. Which CFA Institute Standard is violated?
• Scenario: A firm prints performance numbers with a disclosure that “past performance is not indicative of future results” but hides that the numbers are back-tested. Which CFA Institute Standard is violated?
• Scenario: A portfolio manager fails to consider liquidity risk in a client’s portfolio when making recommendations. Which CFA Institute Standard is violated?
• Charlie Mancini, CFA, approved flexible terms allowing a hedge fund to trade in SVF mutual funds six hours after US market close, which is prohibited by US regulators. Did Mancini violate any CFA Institute Standards?
• A member misstates the nature of a fund's investment strategy in a prospectus.
• Molly Burnett, CFA, holds shares of a wind power company that merged into a utility with a poor environmental record. She continues to hold for dividends then sells. This most likely violates which CFA Institute Standard?
• Under GIPS, a firm must include assets assigned to a sub-advisor provided the firm has discretion over selecting the sub-advisor. Which option best reflects this requirement?
• Which CFA Institute standard is violated when back-tested performance is presented as actual historical performance without proper disclosures?
• Which CFA Institute Standard includes a sub-section titled 'Loyalty, Prudence, and Care'?
• Scenario: A client’s confidential information is used for marketing purposes by an outside firm without consent. Which CFA Institute Standard is violated?
• David Bravoria, CFA, recommends high-risk venture capital funds to a client after two years of no contact and sends monthly investment statements. Did Bravoria most likely violate CFA standards?
• Alexandra Zagoreos, CFA, is the head of a government pension plan. Whenever Zagoreos hires a money management firm to work with the pension plan, she finalizes the deal over dinner at a nice restaurant. At these meals, Zagoreos also arranges for the money manager to provide her payments equal to 10% of the management fee the manager receives from the pension plan with no formal documentation of this agreement. Zagoreos keeps half of the payments for her own use and distributes the remainder as cash incentives to a handful of her most trusted staff. Zagoreos least likely violated which of the following CFA Institute Code of Ethics and Standards of Professional Conduct?
• A performance report omits material risks and cherry-picks periods to show favorable results. Violation?
• Marketing materials claim "GIPS compliant" without following GIPS procedures. Violation?
• Which action by Mager is most consistent with the CFA Institute Standards of Professional Conduct Program?
• Priscilla Moab, CFA, plans to market an online investment newsletter and post buy/sell recommendations on social media with the process explained. To avoid violation, what should she do?
• A CFA candidate updates resume claiming eligibility for the CFA charter upon completion of required work experience. Is this a violation of the CFA Institute Code and Standards?
• Which entity is most responsible for effectively implementing GIPS standards on a country-wide basis?
• Florence Zuelekha, CFA, is an equity portfolio manager at Grid Equity Management (GEM), a firm specializing in commodities. Zuelekha, who previously focused on alternative energy, recently attends her first commodity conference, sponsored in large part by GEM. Independent industry experts argued that commodities would increase in value and recommended that investors hold at least 10% of their portfolio assets in commodities based on consistent increases in their values over the previous two years. Without doing any additional research, Zuelekha recommends to all her clients an immediate allocation of 5% of their portfolio into commodities. Over the next few weeks, Zuelekha moves her own portfolio to a 10% commodity allocation. Which of the CFA Standards did Zuelekha most likely violate?
• Which standard is most consistent with the rule that a sponsor should not accept compensation that creates a conflict of interest unless documented and disclosed to all parties?
• According to Standard VI(C) - Referral Fees, what is a stated purpose of disclosure?
• A portfolio decision is made that conflicts with a client's stated risk tolerance to increase fees. Violation?
• A member discloses a conflict but continues to benefit from it through a trade. Which Standard is violated?
• A firm does not retain client communications and trade records for seven years. Violation?
• Which CFA Institute standard is violated when a member signs a resume claiming to hold the CFA designation when they do not?
• A broker places a high-fee investment that benefits the broker, ignoring the client's objectives. Which Standard is violated?
• Scenario: A firm withholds material information about a fund’s holdings from clients until after a transaction is executed. Which CFA Institute Standard is violated?
• A member discloses only favorable risks in a report and omits material risks. Violation?
• Piedmont scenario: Piedmont developed a stock selection model prior to employment; after leaving, he provides the model to a new employer. Did he violate CFA Institute Standards of Professional Conduct?
• Which of the following is NOT a requirement of the Global Investment Performance Standards (GIPS) for a firm seeking compliance?
• A professional asks a client to waive confidentiality to gain a business advantage.
• A member uses data from a vendor without verifying its reliability and then defends the use to clients.
• Under the Conflicts of Interest standard, which requirement is specified?
• Teresa Avila, CFA, is an investment analyst at a hedge fund. The fund requires Avila to hold any securities she recommends for the fund in her own account as well. Because Avila has such a small account, whenever she trades for her own portfolio she combines the transactions with those of the hedge fund so she is sure to have her account aligned with the fund. Has Avila most likely violated any CFA Institute Standards of Professional Conduct?
• A firm destroys emails and other communications related to client matters to avoid records. Violation?
• A member negotiates a side letter granting preferential terms to a single client. Which Standard is violated?
• Under GIPS Provision 0.A.9, when presenting a compliant presentation, firms cannot choose to whom to present; they must make every reasonable effort to provide a compliant presentation to all prospective clients. This statement is:
• William Wong delays revising a stock recommendation to allow his brother to buy shares. He is least likely to have violated which CFA Institute Standard related to?
• Benefits of compliance with GIPS least likely include?
• Colleen O’Neil, CFA, is required to put clients first. Which personal investment would most likely violate Standard VI(B) Priority of Transactions when her clients insist she trades alongside them?
• Jack Steyn, CFA, notices that paying soft commissions for services from brokers could bias client interests. Which service would most likely violate Standard III(A) Loyalty, Prudence, and Care by paying for it with client brokerage?
• Which CFA Institute Standard governs the acceptance or payment of referral fees?
• The CFA Institute Code of Ethics and Standards of Professional Conduct are designed to foster and reinforce a culture of:
• How is confidential CFA exam information most likely detected by the Professional Conduct staff?
• Which CFA Institute standard is violated when a supervisor ignores a subordinate's unethical trading?
• A supervisor provides insufficient training to subordinates on CFA standards.
• If a CFA member’s conduct could injure their employer’s reputation, which standard requires avoiding such conduct?
• If a cost-benefit analysis shows voting all proxies may not benefit the client, what should the manager do?
• A client’s risk profile has not been updated in more than two years, yet the advisor seeks to increase the client’s risk exposure. This action most clearly violates which CFA Standard?
• Under what circumstance could a client win a lawsuit against a financial adviser despite the adviser meeting all regulatory and legal requirements?
• Marc Davidson, CFA, runs a part-time consulting business for trustees without informing his employer. After moving to a competitor, former clients follow him to Legacy Trust Services. Did Davidson’s actions violate the CFA Institute Code and Standards?
• Under the Priority of Transactions rule within the Conflicts of Interest standard, what is required?
• A research analyst cites data from a suspect source without verifying reliability. Which CFA Institute Standard is violated?
• Kelso's webcast statement would least likely violate which standard?
• Which CFA Institute Standard addresses loyalty when departing from an employer?
• Which CFA Standard requires members to develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment-related communications?
• Atlantic Capital Management has access to a limited number of shares in a popular new issue expected to be oversubscribed. Atlantic's portfolio managers have determined the issue to be a prudent addition within Atlantic's developing growth equity strategy. A number of the firm's investment professionals have family-member accounts that are managed to the developing growth strategy. Which of the following allocation options most likely adheres to the Code and Standards? Atlantic should allocate the shares:
• Which option best reflects the proper allocation of an oversubscribed new issue when family-member accounts are part of the same strategy as other clients?
• Kazuya’s act of selling his forecast to an internet site constitutes which CFA Institute Standard?
• Failing to properly attribute external research and presenting it as one’s own could constitute a violation of which Standard?
• A bond portfolio manager approved only one below-investment-grade bond for a client with an investment-grade mandate, then added several more below-investment-grade bonds without client approval. This action most likely violated which CFA Institute Standard of Professional Conduct?
• Which statement reflects the updated Code of Ethics principle regarding the role of capital markets?
• A member trades in a security shortly before a public offering they are researching for a client, potentially taking advantage of nonpublic information. Violation?
• A member secretly uses a client's funds for personal expenses without consent. Which standard is violated?
• A client requests copies of all communications; the firm discards some, claiming they are irrelevant. Violation?
• Scenario: A member fails to update a client about material changes in a recommendation and does not provide a new suitability assessment. Which CFA Institute Standard is violated?
• Which Standard is violated when an advertisement promises guaranteed returns with no risk disclosures?
• Scenario: A firm uses a vendor's research in a client report but fails to disclose the vendor’s compensation relationship. Which CFA Institute Standard is violated?
• A broker executes a client's order after internal orders that use preferential treatment, violating the priority of transactions. Which Standard is violated?
• Scenario: A CFA candidate claims to have passed the CFA exam when they have not yet taken it. Which CFA Institute Standard is violated?
• A marketing piece claims guaranteed returns with no risk. Which Standard is violated?
• In a scenario where a research head delays informing clients about a change from a bottom-up to a top-down research approach until inventory is depleted, which CFA Standard is most at risk of violation?
• Which activity may be legal but is considered unethical by CFA Institute?
• Becca Msafari overhears senior managers discussing staff changes; under what circumstances could she use this information when making an investment recommendation?
• A researcher presents only favorable information about a product to clients, omitting material risks. Violation?
• A marketing piece uses exaggerated claims about a product's safety. Which Standard is violated?
• A researcher or analyst uses nonpublic information obtained from a colleague to trade. Which Standard is violated?
• A member owns a large stake in a company whose stock is recommended to clients and fails to disclose. Violation?
• Kazuya, a CFA at a global investment bank, issues a forecast and secretly sells the report to a website. He also emails portfolio managers indicating his forecast will reverse shortly to create trading opportunities. Which CFA Institute Standard did he least likely violate?
• Which of the following issues is NOT included in the Fundamentals of Compliance section of the Global Investment Performance Standards (GIPS)?
• In order to achieve compliance with GIPS Standards, which recommendation is correct?
• Which CFA Institute standard is implicated when a member knowingly uses client information to benefit a personal investment opportunity without the client's consent?
• What is the single most important factor in promoting ethical behavior within an investment firm?