CFA Level I Ethical and Professional Standards

A member comes across material nonpublic information about a listed company. What should they do?

Standard II(A) forbids acting or causing others to act on material nonpublic information.

A member works in a country whose securities law is less strict than the Code and Standards. Which rules should they follow?

Standard I(A) Knowledge of the Law: follow the more strict of applicable law and the Code and Standards.

A client offers a portfolio manager a bonus if the account beats its benchmark. Under Standard IV(B), the manager must:

Additional compensation that could create a conflict with the employer needs written consent from all parties involved.

An analyst changes a buy recommendation to a sell. How should the firm communicate it?

Standard III(B) Fair Dealing. Fair does not have to mean simultaneous, but no client group may be favoured.

In what order should transactions be carried out?

Standard VI(B) Priority of Transactions.

Before recommending an investment to an advisory client, a member should:

Standard III(C) Suitability, usually documented in an investment policy statement and updated at least once a year.

Under Standard III(D) Performance Presentation, a member must:

Simulated results are allowed only if clearly labelled as such.

When may a member disclose confidential information about a former client?

Standard III(E) Preservation of Confidentiality covers current, former and prospective clients.

A portfolio manager plans to start a competing firm. While still employed, which is allowed?

Standard IV(A) Loyalty: preparations are fine as long as they do not breach the duty to the current employer.

What is a supervisor's duty under Standard IV(C)?

Supervisors should have adequate compliance procedures in place and enforce them.

Under Standard V(A) Diligence and Reasonable Basis, a recommendation must:

Members may rely on third-party research if they have reason to believe it is sound.

Which is required by Standard V(B) Communication with Clients?

Members must also describe the basic investment process and its main risks and limitations.

If no regulation applies, for how long does CFA Institute recommend keeping records that support research?

Standard V(C) Record Retention. The records belong to the firm, not to the analyst.

An analyst owns shares in a company she covers. What must she do?

Standard VI(A) Disclosure of Conflicts covers anything that could reasonably impair independence and objectivity.

A member receives a fee for referring clients to a lawyer. What must they do?

Standard VI(C) Referral Fees: disclose the nature and value of the benefit.

Which is a correct use of the designation?

Standard VII(B): CFA is never used as a noun, and is written without periods.

How may a candidate who has passed Level I but not yet Level II describe themselves?

There is no partial designation; "CFA Level I" or "CFA (expected)" is not allowed.

Which of these breaks Standard I(C) Misrepresentation?

Plagiarism is misrepresentation.

Which is market manipulation under Standard II(B)?

Manipulation distorts prices or volumes with intent to mislead.

A company pays an analyst firm to cover it. When is this compatible with independence and objectivity?

Standard I(B) Independence and Objectivity.

How should a manager vote proxies on client shares?

Proxies have economic value; Standard III(A) Loyalty, Prudence and Care.

What does the mosaic theory allow?

The conclusion may be material, but each piece must be public or non-material.

Who can claim compliance with the GIPS standards?

Compliance is firm-wide; a firm cannot claim compliance for only part of its business.

Under GIPS, which portfolios must be included in at least one composite?

This prevents cherry-picking.

A member files for personal bankruptcy after a business fails, with no fraud involved. Under Standard I(D) Misconduct, is this a violation?

Misconduct covers dishonesty, fraud or deceit that reflects on professional reputation, integrity or competence.

Who owns the brokerage commissions generated by a client account?

Brokerage is a client asset, so soft dollars must benefit the client.

After the exam, a candidate posts which topics came up on social media. Is this allowed?

Candidates may share general views, such as that the exam was hard, but not topics or questions.