CFA 2018 Quest bank 04 Standards of Professional ...uidance Duties to Clients

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Question ID: 412449

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Question #3 of 35

Question ID: 412445

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Standards of Professional Conduct & Guidance: Duties to

Clients

Test ID: 7440148

Nancy Korthauer, CFA, haslaunchedanew hedgefundcalledthe KorthauerTautology Fundandisactively soliciting clients

fromcompetitor'sfirms. Clientpresentationsarenecessarily briefandoftentakeplace with theprospectiveclient'scurrent

investmentadvisorintheroom. TheCodeandStandardsrequirethat:

all client presentations provide a thorough review of all elements of the

investment management process. Abbreviated presentations are forbidden.

aprospectiveclient'scurrentinvestmentadvisornotparticipateinmeetings.

memberorcandidateprovide (onrequest)additionaldetailinformation which supports

theabbreviatedpresentation.

Explanation

SeeStandard III(D). Whenpresentationsare brief, additionaldetail which supportstheabbreviatedpresentationinformation

must beprovidedonrequest. Bestpracticedictatesthatthememberorcandidateshouldmakereferencetotheabbreviated

natureofthepresentation.

PaulSalyer,aportfoliomanager, ismaking apresentationtoaprospectiveclient. Paulsaysthatasanew portfoliomanager,

hemadeanaverageannualrateofreturnof50% inthelasttwo yearsat hispreviousfirmandthat basedonthis, hecan

guaranteea50% returntotheclient. Which ofthefollowing statementsisinaccordance with Standard III(D), Performance

Presentation?

Implying that he can guarantee a return.

Imputing hispastperformancetofutureperformance.

Stating hispastperformanceaslong asitisfact.

Explanation

Thereisnoevidencethat he'slying about hispastperformance. Heisin violationforimplying that hecan guarantee

performance, forusing short-termperformance, andforimputing themanager'spastperformancetofutureperformance.

Amoney managerismeeting with aprospect. She givestheclientalistofstocksandsays, "Thesearethe winners I picked

thispast yearformy clients. Theirdouble-digitreturnsindicatethetypeofreturns I canearnfor you." Thelistincludesstocks

themanager hadpickedfor herclients, andeach stock haslisted with itanaccurately measuredreturnthatexceeds10%. Is

thisa violationofStandard III(D), PerformancePresentation?

Yes,because the manager cannot reveal historical returns of recent stock

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Question ID: 412456

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Question #5 of 35

Question ID: 412406

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Question #

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Question ID: 454913

Yes, unlessthepositionslistedconstituteacompletepresentation (i.e., there wereno

stocksomittedthatdidnotperforminthedoubledigits).

No, becausethemanager hadthe historicalinformationin writing.

Explanation

Standard III(D)requiresfairrepresentationsconcerning pastandpotentialfutureperformance. Unlessthelistofthe "winners"

includesallthepositionsthatthefirm held, themanagerismisrepresenting pastperformance. Thefollowing statementis

questionable: "Theirdouble-digitreturnsindicatethetypeofreturns I canearnfor you," buttheactionofsubmitting apartial

listisclearly a violation. Themanagershould haveinformationonpastperformancein writing.

Standard III(E), PreservationofConfidentiality, appliestotheinformationthatananalystlearnsfrom:

current clients, former clients, and prospects.

currentclientsandprospectsonly.

currentclientsandformerclientsonly.

Explanation

According toStandard III(E), PreservationofConfidentiality, ananalystmustpreservetheconfidentiality ofinformation

communicated by clients, formerclients, andprospects.

Which ofthefollowing isapossible breach offiduciary duties by aCFA Institutemember whomanagesassetson behalfofa

client?

Neither of these breach fiduciary duties.

Voting allproxiesofstockstheclientowns.

Using directed brokerage.

Explanation

Proxies haveeconomic valuetotheclient. Tocomply with Standard III(A), theanalystisobligatedto voteproxiesinan

informedandresponsiblemanner. Acost benefitanalysismay show that voting allproxiesmay not benefittheclient, so voting

proxiesmay not benecessary inallinstances. Directed brokerageoccurs whentheclientrequeststhataportionoftheclient's

brokerage beusedtopurchaseservicesthatdirectly benefittheclient. Although, thismay prevent bestexecution, itdoesnot

violatetheStandardsasit wasdirected by theclient, notthe brokeragefirm.

LanceTuipulotu, CFA, managesinvestmentsfor 400individualsandfamiliesandoftenfinds hisresourcesstretched. When

hislargestinvestorspetition himtoincludea5% to7% allocationofnon-investment-grade bondsintheirportfolios, hedecides

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Question #7 of 35

Question ID: 412418

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Question ID: 472458

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determinesthatthemost qualifiedadvisors would betooexpensive. Reasoning thatalower-costprovider wouldenable himto

passthesavingsalong to hisclients, hechoosesthatprovidertoinvestthenew bondallocation. Tuipulotu has violated:

Standard III(C) Suitabilityby failing to consider the appropriateness of the non

-investment-grade bonds.

Both Standard III(C)Suitability andStandard V(A) Diligenceand ReasonableBasis.

Standard V(A) Diligenceand ReasonableBasis by letting feestructuredeterminethe

selectionofthesubmanager.

Explanation

Both Standard III(C)Suitability andStandard V(A) Diligenceand ReasonableBasis were violated. Tuipulotumustperformafull

IPSreview todeterminetheappropriatenessofthenew portfolioallocations. Submanagersshouldnot beselected by cost

structurealone, asthe quality andappropriatenessofthesubmanagerisTuipulotu'sresponsibility.

Which ofthefollowing statementsisleastaccurateregarding being apartofStandard III(B), Fair Dealing?

Maintain a list of clients and their holdings.

Atthesametimenotify clientsfor whomaninvestmentissuitableofanew investment

recommendation.

Shortenthetime betweendecisionanddissemination.

Explanation

AllofthesearepartofStandard III(B)exceptnotifying clientsatthesametime. Standard III(B)statesthatclientsfor whomthe

investmentissuitableshould benotifiedatapproximatelythesametime.

Tony Calaveccio, CFA, isthemanageroftheTrustCoSmallCap Venture FundinToronto. Heplacestradesforthefund with

CanadianBrokerage. CanadianprovidesCalaveccio with softdollarstopurchaseresearch. Heusesthesesoftdollarsto get

research reportsfromCanadian'sresearch departmentregarding theissuescurrently heldinthesmallcapportfolio, andalso

forfirms heiscontemplating adding totheportfolio. By using softdollarsinthismanner, Calaveccio has:

violated the Code and Standards by acquiring research on issues

contemplated for purchase but not by acquiring research on currentlyheld issues.

violatedtheCodeandStandards by acquiring research onissuesthatthefund already holds butnot by acquiring research onissuescontemplatedforpurchase.

not violatedtheCodeandStandards.

Explanation

"Softdollars" aretheproperty oftheclient (inthiscasethe holdersofthesharesoftheSmallCap Venture Fund). Standard

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Question ID: 412407

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Question #10 of 35

Question ID: 412458

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research thatisdirectly applicableto hisprofessionalduties, thereisno violationoftheStandard.

Tony Calaveccio, CFA, isthemanageroftheTrustCoSmallCap Venture FundinToronto. Heplacestradesforthefund with RiverCity Brokerage. RiverCity providesCalaveccio with softdollarstopurchaseresearch. RiverCity alsodealsinmunicipal

bonds, someof which Calaveccio holdsin hispersonalportfolio. Heperiodically usesthesoftdollarstorequestresearch

reportson varioussmallcapstocksandalsoonthestatusofthemunicipal bondmarketandissuesthat he holds. These actionsare:

not in violation of the Code and Standards.

in violationof hisfiduciary dutiesregarding both thesmallcapresearch andthe

municipal bondresearch.

in violationof hisfiduciary dutiesregarding themunicipal bondresearch butnotso regarding theresearch onthesmallcapissues.

Explanation

Theissueat handisthemember'sfiduciary responsibilitiesin handling "softdollars" which aretechnically theproperty ofthe client. Standard III(A), Loyalty, Prudence, andCare, delineatesthemember'sfiduciary responsibilities with regardtosoft dollars. Sincemunicipal bondresearch isclearly notrelevanttotheSmallCap Fund holders, heisclearly using thesoftdollars toobtainresearch for hispersonal benefitandisin violationoftheStandard.

Calvin Doggett, CFA, has beencontacted by theCFA InstituteProfessionalConductProgram (PCP)regarding allegationsthat

he hastakeninvestmentactionsthat wereunsuitablefor hisclients. Doggettis questioned by PCPconcerning theidentity of

hisclients heconsideredsuitableforinvesting ina very risky start-upcompany thateventually went bankrupt.

Doggett will:

not violate the Code and Standards by revealing the names, financial condition and investment objectives of his clients to PCP.

violatetheCodeandStandards by fully cooperating with aPCPinvestigationifit

meansrevealing confidentialinformation.

not violatetheCodeandStandardsonly if herevealsthefinancialconditionand

investmentobjectivesof hisclientsonananonymous basisanddoesnotrevealthe namesof hisclientstoPCP.

Explanation

Standard III(E)requiresmemberstopreserveclientconfidentiality. AnexceptiontothisstandardisaPCPinvestigation.

BecausePCP willalso keeptheclients' informationconfidential, membersareexpectedtofully cooperate with PCP

Question #11 of 35

Question ID: 412436

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Question ID: 412417

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Question #13 of 35

Question ID: 412457

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Bob Hatfield, CFA, has hisownmoney managementfirm with twoclients. Theaccountsofthetwoclientsareequalin value. Oneoftheclients getsmarriedandtheassetsofthenew spouseandtheclientarecombined. With thelargerportfolioofthe now marriedclient, Hatfielddeterminesthatthey canassumea higherlevelofrisk and beginsachangeinthepolicy

concerning thatportfolio. Which ofthefollowing would violateStandard III(C), Suitability?

Assess the time horizon of the newly married client and his spouse. Assessthereturnobjectivesofthenewly marriedclientand hisspouse. Implementasimilarpolicy fortheotherclient whodidnotjust getmarried.

Explanation

According toStandard III(C), Suitability, theanalystmustassessthetime horizon, returnobjectives, tax considerations, and liquidity needsofaclient beforechanging aninvestmentpolicy. Theanalystmustnotify theclientofthenew policy.

Implementing thepolicy fortheotherclientmay bea violationoftheStandardunlessthatclient'sneedsaretotally reassessed anddeterminedto beidenticaltotheneedsofthenewly marriedclient.

Aninvestmentadvisor goesstraightfromaresearch seminartoameeting with aprospectivenew client with whomshe has never beenincontact. Theadvisoris very excitedabouttheinformationshejustreceivedintheseminarand beginsshowing

theprospectthenew ideas herfirmiscoming up with. Thisismostlikelya violationof:

Standard III(B),Fair Dealing.

Standard III(C), Suitability. both ofthese.

Explanation

Itisa violationofStandard III(B) becausetheadvisorshouldactfirston behalfofexisting clients whoseneedsand

characteristicsshealready knows. Itisa violationofStandard III(C) becauseshe hasnevermettheprospectanddoesnot

know ifthenew ideasareappropriatefortheprospect. Thus, "both ofthese" isthe bestresponse.

ACFAcharterholdermay discloseconfidentialinformationaboutaclient when:

it is a necessary step in proceedingwith research on client preferences. theinformationisnonmaterial.

theCFA InstituteProfessionalConductProgramrequestsit.

Explanation

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Question #15 of 35

Question ID: 412452

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Question #1

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Question ID: 412413

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Tony Calaveccio, CFA, isthemanageroftheTrustCoSmallCap Venture FundinToronto. Calaveccioplacesatrade with

QuantcoBrokerage. WhileCalaveccio'spartofthetransaction wasconveyedcorrectly toQuantco, there wasatrading error madeinCalaveccio'saccountduetoaslipup withinQuantco. Calavecciorealizesthattheerror hastakenplace, andinforms

hiscontactatQuantco. CalaveccioallowsQuantcotocovertheerror, with nocosttoTrustCo. Thisis:

a violation of Calaveccio's fiduciary duties. a violationofCalaveccio'sduty to hisemployer.

permissibleunderCFA InstituteStandards.

Explanation

Theissueissimilartoanallocationofsoftdollars. Clearly, ifthe brokerabsorbstheloss, they expecttomakeupthe

differenceinsome way. However, sincetheerror wasonthepartofQuantcoBrokerage, Calaveccioisundernoobligationto

coverthecostofthetrading error. Moreover, noreasonableobserverexpectsthatthereexistsany impliedfutureallocationof tradestoQuantcoinreturnforcorrecting theirownmistake. Thereisno violationofStandard III(A), Loyalty, Prudence, and Care.

Greg Stiles, CFA, may withholdfromCFA Instituteinformationaboutaclientacquiredintheregularperformanceof hisduties:

only if Stiles is a relative of the client.

only ifStiles hasaspecialconfidentiality agreement with theclient.

forneitherofthereasonslisted.

Explanation

According toStandard III(E), PreservationofConfidentiality, Stilesmay not withholdinformationunderany ofthelisted

reasons. ThereasonisthatCFA Institute will keeptheinformationconfidential.

Jason Reynoldsmeets Jack Parker, CFA, atasocialengagementandasksforsome "hotstock tips." Parkerdeclines, butsets upanappointmenttoreview Reynolds' risk andreturnobjectivesandfinancialconstraints. Attheconclusionoftheir

appointment, Parkerrecommendsthreesecurities he hasthoroughly researched: ACK, D-Wing, and Ophus-Littbinger. Parker isleastlikely:

in violation of Standard III(A) "Loyalty, Prudence, and Care" for failing to make a reasonable inquiry into the client's investment experience.

in violationofStandard III(A) "Loyalty, Prudence, andCare" forfailing toconsiderthe threesecuritiesinthecontextofthe wholeportfolio.

Question #17 of 35

Question ID: 461183

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Question #1

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Question ID: 412415

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Question #1

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Question ID: 412419

Explanation

Standard III(A) "Loyalty, Prudence, andCare" requiresParkertomakeareasonableinquiry intotheclient'sinvestment experience, risk andreturnobjectives, andfinancialconstraints. Investmentdecisionsmust bemade basedonatotalportfolio

approach, ratherthanthe quality ofanindividualinvestmentinisolation.

Ananalystthinksthatamajorchangeinthetax law will benefit holdersofutility company stocks. Sheimmediately begins calling all herclientsandtelling themoftheupsidepotentialofinvesting insuch assetsnow. Baseduponthisinformation, this

ismostlikely:

congruent with Standard V(A),Diligence and Reasonable Basis.

a violationofStandard V(A), Diligenceand ReasonableBasis.

a violationofStandard III(C), Suitability.

Explanation

According toStandard III(C), theanalystneedstodeterminethesuitability ofaninvestmentforeach client. Itisdoubtfulthatall

herclientsareidenticalintheirneeds. According totheinformation, theanalystmentionstheupsidepotential butdoesnot

mentionthedownsiderisk. Although theinformationsaysthatshethinksthatthechangeinthetax law will benefit holdersof utility company stocksandsaysnothing of how shearrivedatthisconclusion, wedonot know ifshe hasor hasnotmade her

decisiononareasonable basis.

Which ofthefollowing would bea violationofStandard III(B), Fair Dealing?

Trading for regular accounts before discretionary accounts.

Limiting thenumberofemployeesprivy torecommendationsandchanges. Having welldefined guidelinesforpre-dissemination.

Explanation

Donotdiscriminateagainstaclient whendisseminating investmentrecommendations. Ifthefirmoffersdifferentlevelsof service, thisfactmust beofferedanddisclosedtoallclients. Theotherchoicesarenecessary partsoftheStandard. The Standardactually saysto havepublishedpersonal guidelinesforpre-dissemination, which impliesthatthe guidelines be well

-defined.

Amoney managementfirm hasthefollowing policy concerning new recommendations: Whenanew recommendationismade,

each portfoliomanagerestimatesthelikely transactionsizeforeach oftheirclients. Clientsarenotifiedofthenew

recommendationintheorderoftheirestimatedtransactionsize-largestfirst. Allclients havesignedaform wherethey

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Question ID: 412411

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Question #

2

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Question ID: 412453

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Question #

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Question ID: 412408

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not a violation because the clients are aware of the policy. a violationofthestandard.

nota violation becausetheclients havesignedtheconsentform.

Explanation

Such apolicy isa violationoftheStandardandclientacknowledgementand/orconsentdoesnotchangethatfact.

According to Standard III(A) Loyalty, PrudenceandCare, brokerage isanasset ofthe:

client.

brokeragefirm conducting thetrades. managing firm.

Explanation

Brokerage isanasset oftheclient.

Greg Stiles, CFA, keepsalistof hisclients' birthdaysand haspersonally sentthema birthday cardeach yearatthe appropriatetime. With respecttothisaction, which ofthefollowing may bea violationofStandard III(E), Preservationof Confidentiality?

Sending a gift alongwith the card.

Themereactofsending a birthday cardeach year. Hiring acompany outsidethefirmtoperformthetask.

Explanation

According toStandard III(E), ananalystshouldlimitthenumberofpersons who haveaccesstoclients' personalinformation.

Allowing acompany outsidethefirmtosend birthday cardscould bea violation. Sending a birthday cardisnota violation, nor issending a giftofreasonable value.

Allofthefollowing arerequired by fiduciariesunderStandard III(A), Loyalty, Prudence, andCare, EXCEPT:

support the sponsor's management during proxy fights.

placetheclient'sinterest beforetheemployer'sinterest.

actsolely intheinterestoftheultimate beneficiaries.

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Question ID: 412420

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Question ID: 412416

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Question #

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Question ID: 412446

Membersarerequiredtoactintheinterestoftheirclients. In voting proxies, theclient'sinterestmustprevailover management'sinterest.

Insecuring thesharesforallaccountsunder hermanagement, Linda Kammelof Northwest Futurespurchasedthree blocksof sharesatthreedifferentprices. Shethenallocatedtheseshares by placing sharesfromthefirst block inaccounts with

surnames beginning with A-G. Thesecond wasallocatedoveraccounts H-P, andthethirdoverQ-Z. Thisactionis:

not permissible under the Code and Standards.

consistent with herresponsibilitiesundertheCodeandStandards.

permissibleonly iftheclientsareinformedoftheallocationprocedure.

Explanation

Standard III(B)requiresamembertodealfairly with allclients whentaking investmentactions. Sinceshe knew attheoutset thatshe was going toplacesharesinallaccounts, regardlessofthefirstletterofthesurname, allaccountsmustparticipateon apro-rata basisineach block inordertoconformtotheStandard. Heractionsconstitutea violationoftheStandard

concerning fairdealing.

Ananalystmeets with anew client. During themeeting, theanalystseesthatthenew client'sportfoliois heavily investedin

oneover-the-counterstock. Theanalyst has beenfollowing thestock andthinksit willperform wellinthelong run. Theanalyst arrangesthrough a brokeragefirmtosimultaneously sellalargenumberofsharesofthestock viaaseriesofcrosstrades fromthenew client'sportfolioto variousexisting clients. Hearrangesthetradesto beexecutedatapricethatapproximates thecurrentmarketprice. Thisactionis:

not in violation of the Standards.

a violationofStandard III(B), Fair Dealing.

a violationofStandard III(A), Loyalty, Prudence, andCare.

Explanation

Thereisno violation. Itisinthe bestinterestoftheclientto bediversifiedandselling viaaseriesofcrosstrades willlikely

reducepriceimpactcosts whencomparedtoselling directly intothemarket. Theanalystappearsto havereasonable basisfor putting thesecuritiesintheaccountsofotherclients.

Amoney managementfirm hascreatedanew junk-bondfund. Whenthefirmadvertisedthenew fundatitsissuance, they

usedcaretoaccurately computethereturnsfromthepast10 yearsforallassetsinthefund. Thefirmusedthecurrent

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Question #

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Question ID: 412401

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Question #

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Question ID: 412404

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a violation because the Standard prohibits computinghistorical returns on

risky assets like junkbonds.

incompliance.

a violation becausetheadvertisementimpliesthefirm generatedthisreturn.

Explanation

Reporting the historicalreturnsofallassetsnow inthefundintroducesasurvivorship bias. Also, theadvertisementis

misleading becausethefundjustcameintoexistenceand hasno historicalrecord. Thus, thefirm hasmisledthepublicasto

theirperformance history.

AlanCramer, CFA, practicesinacountry thatdoesnotregulatetheinvestmentofcompany retirementplans. He wasretained

by BinghamCompaniestomanagetheircorporatepensionplan. Bingham'smanagement hasapproachedCramerand

requestedthatCramerinvesttheentireplaninBinghamstock.

Cramermay:

invest all of the retirement plan assets in Bingham Company stock according to management's request only if Cramer can document that the investment is more prudent than any other investment opportunityhe finds.

notinvestany ofBinghamCompany'sretirementplaninitsownstock regardlessof thestock'sprospectsandinspiteofmanagement'srequest.

investaportionoftheretirementplaninBinghamCompany stock iftheinvestmentis

prudentandif he keepstheoverallportfolioproperly diversified.

Explanation

Standard III(A), Loyalty, Prudence, andCare, requiresmemberstocomply with theirfiduciary duty. Retirementplanmanagers

owetheirduty totheplanparticipants, nottothemanagementofthecompany sponsoring theplan. Thefiduciary duty

includestheobligationtodiversify theplan'sinvestments, regardlessofthe quality ofthesponsoring company'sstock. Investing inthecompany'sstock isnotprohibited.

Anindependentanalyst hasonly oneclient. Oneoftheclient'slargest holdingsisa brokeragefirm. Becauseofthelarge

holding by hisclient, the brokeragefirmrecently beganallowing theanalysttotapintothefirm'scomputernetwork tousethe firm'sresearch facilities. Thisisallowableaslong astheanalyst:

uses the resources to help manage the client's account.

does both oftheactionslisted here.

disclosestherelationshiptotheclient.

Explanation

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Question #

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Question ID: 461186

possibleconflictsofinterest. Theanalystmustchannelany benefitsderivedfrom hisservicetotheclient, back totheclient,

andinformtheclientofthe benefits.

ChandraPatel, CFA, managesprivateclientportfoliosforQED InvestmentAdvisers. PartofQED'sfirm-widepolicy isto

adheretoCFA InstituteStandardsofProfessionalConductinthemanagementofallclientportfolios, andtothisend, thefirm requiresthatclientobjectives, investmentexperience, andfinanciallimitations beclearly establishedattheoutsetofthe

relationship. Thisinformationisupdatedatregularintervalsnottoexceedeighteenmonths. Theinformationismaintainedina

writteninvestmentpolicy statement (IPS)foreach client.

Anarudh Singh has beenoneofPatel'sclientseversinceshe beganmanaging money ten yearsago. Shortly after hisregular

situationalupdate, Singh callstoinformPatelthat hisuncleisill, anditisnot known how long he willsurvive. Singh expectsto inherit "asizeablesumofmoney," mainly intheformofmunicipal bonds. Hisexisting portfolioallocation guidelinesarefor75%

to beinvestedin bonds. Singh believesthattheexpectedinheritance willallow himtoassumeamoreaggressiveinvestment

profileandasksPatelto beginmoving towarda75% allocationtoequities. Heisspecifically interestedinopening sizable

positionsinseveraltechnology firms, someof which haveonly recently becomepublicly tradedcompanies. Patelagreesto

beginmaking thechangestotheportfolioandthenextday beginsselling bondsfromtheportfolioandpurchasing stocksin thetechnology sectoras wellasinothersectors. Afterplacing thetradeorders, PatelsendsSingh anemailtorequestthat he cometo herofficesometimeduring thenext week toupdate his IPS. Singh repliestoPatel, saying that hecanmeet with her

next Friday.

Afew days beforethemeeting, however, Singh'sunclediesandtheportfolioofmunicipal bondsistransferredtoSingh's account with QED. Patelseesthisasanopportunity topurchasemoretechnology stocksfortheportfolioandsuggeststaking

such actionduring hermeeting with Singh, whoagrees. Patelreviews herfilesontechnology companiesandlocatesareport

on NetWin. Theanalyst'srecommendationisthatthisstock isa "core holding" inthetechnology sector. Pateldecidesto purchasethestock forSingh'saccountinadditiontoseveralother wealthy clientaccounts with high risk tolerancelevels, but duetotimeconstraintsshedoesnotreview the holdingsineach account. Pateldoesexaminetheaggregate holdingsofthe accountstodeterminetheapproximate weightthat NetWinshouldrepresentineach portfolio.

SincePatel has very recently passedthe Level III examinationleading totheawardoftheCFAdesignation, QED sendsa

promotionalemailtoallofthefirm'sclients. Theemailstates "QED isproudtoannouncethatChandraPatelisnow aCFA

(Chartered FinancialAnalyst). Thisdistinction, which istheculminationofmany yearsof work andstudy, isfurtherevidenceof thesuperiorperformance you'vecometoexpectatQED." Patelalsoplacesphonecallstoseveral brokersthatsheusesto placetradesfor heraccounts, stating thatshe "passedallthreeCFAexaminationsonthefirstattempt." Oneofthepeople PatelcontactsisMax Spellman, along-timefriendand broker with TradeRightBrokers Inc. Patelusestheopportunity to

discuss herexclusivetrading agreement with TradeRightforSingh'saccount.

Whenordering tradesforSingh'saccount, Patel'sagreement with TradeRightfor brokerageservicesrequires hertofirstoffer

thetradetoTradeRight, andthentoanother brokerifTradeRightdeclinestotakethetrade. TradeRightneverrefusesthe tradesfromany manager'sclients. Patelestablishedtherelationship with TradeRight becauseSingh, knowing thefirm'sfee schedulerelativetoother brokers, asked hertodoso. However, becauseTradeRightis very expensiveandoffersonly

moderate quality ofexecution, Patelisconsidering directing tradesonSingh'saccounttoBullBroker, which chargeslower

commissionsand generally completestradessoonerthanTradeRight.

DoQED'spoliciescomply with CFA InstituteStandardsofProfessionalConduct with respecttotheinformationcontained

Question #31 of 35

Question ID: 461189

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Question #3

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Question ID: 461190

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Question #33 of 35

Question ID: 461191

objectivesandconstraints (typically intheformofan IPS). BecauseSingh's written IPS wouldnotallow thelargeallocationto

technology stockspriortoreceiving theinheritance, the IPSmust beupdated by Singh andPatelpriortotaking any actions thatdeviatefromtheoriginal IPS. Patel will violateStandard III(C) by reallocating theportfolio beforemeeting with Singh. (Study Session1, LOS 2.a,b)

DidPatel violateany CFA InstituteStandardsofProfessionalConduct whenshepurchasedthe NetWinstock forSingh's

portfolioorfortheotherclients' portfolios?

Singh's

portfolio Otherportfolios

No No

No Yes

Yes Yes

Explanation

According toStandard III(C)-Suitability, Patelmustanalyzetheappropriatenessandsuitability of NetWin.comstock onacase -by-case basis before buying it. This willnecessarily considerthe basiccharacteristicsofthesecurity and how these willaffect

overallportfoliocharacteristicsrelativetotheexisting investmentstrategy foreach portfolio. Patel hasnotanalyzedtheeffect thatthestock will haveonany oftheindividualportfoliosin questionand hasthus violatedtheStandard. Patelcannotlook at aggregatemeasurestodeterminetheappropriate weightthatthesecurity shouldrepresentintheindividualportfolios because theportfoliosare being managedindividually, notinaggregate. (Study Session1, LOS 2.a,b)

Which ofthefollowing isleastaccurateregarding thepromotionalannouncementofPatelpassing the Level III exam?

The promotional announcement violates the restrictions on misrepresenting

the meaning of the CFA designation.

Thepromotionalannouncementusestheletters "CFA" asanounand henceisan

improperuseofthedesignation.

Theannouncement violatestheCodeof Ethics becauseitimpliesthatobtaining a CFAcharterleadstosuperiorperformance.

Explanation

Anannouncementthatamemberofafirm hasreceivedtherighttousetheCFA® designationisnota violationoftheCodeor

Standards. However, Standard VII(B)requiresthatany referencetothechartermustnotmisrepresentorexaggeratethe

meaning orimplicationsoftheCFAdesignation. Acharterholdercannotclaimthat holding acharterleadstosuperior performanceresults. Theletters "CFA" canonly beusedasanadjective (neveranoun, asin "heisaCFA"). Finally, passing

allthreeexamsdoesnot giveonetherighttousethedesignation. Allcriteriamust bemet (e.g., experiencerequirements)

beforePatelcanusethedesignation. (Study Session1, LOS 2.a,b)

appropriateactionistodiscuss with theclient whetherthistraderequestreflectsachangein herinvestmentobjectivesand