Question 1
Multiple ChoiceTina Alvarez, CFA, leaves her position at Kingston Financial to join a competing investment firm. She uses LinkedIn and other publicly available online sources to find contact information for former clients and invites them to follow her to the new firm. She does not take or use any proprietary records or client lists from Kingston Financial.
Has Alvarez violated any CFA Institute Standards of Professional Conduct?
Explanation
Under Standard IV(A), Loyalty, members may not use confidential or proprietary information from a former employer for personal or competitive advantage. However, contacting former clients using publicly available information is permitted. Alvarez did not violate any Standards since she respected confidentiality and used only non-proprietary sources.
Question 2
Multiple ChoiceErica Lang, CFA, plans to start offering part-time financial planning services outside of her full-time job at a wealth management firm. She intends to notify her employer about the services and how long she plans to offer them, but she does not mention how many clients she will serve.
According to Standard IV(A), Loyalty, Lang is least likely required to disclose:
Explanation
Standard IV(A) requires members to inform their employer of any independent practice that might conflict with the employer’s interests. This includes disclosing the nature of services, compensation, and duration of the activity. The number of clients, while potentially relevant, is not explicitly required for initial disclosure under the Standard.
Question 3
Multiple ChoiceAngela Kim, CFA, works full-time at Harborview Asset Management. Her cousin recently became a board member at Oceanic Robotics and asks Kim to monitor the company’s stock in exchange for a season pass to a ski resort. The cousin owns a substantial number of shares and relies on Kim for periodic updates. No cash compensation is involved, and the work is done outside of Kim's office hours.
To comply with the CFA Institute Code and Standards, Kim must disclose:
Explanation
Under Standard IV(A), Loyalty, and Standard VI(A), Disclosure of Conflicts, members must disclose any outside employment or activity that may create a conflict of interest—even when no money changes hands. The season pass is considered compensation, and the relationship to a shareholder of the company Kim is monitoring may influence her objectivity. Full disclosure to her employer is required.
Question 4
Multiple ChoiceJacob Lin, CFA, manages a portfolio for a long-time client who owns a luxury hotel chain. As a token of appreciation, the client offers Lin free weekend stays at any of the hotels in the chain, several times per year, as long as Lin continues to manage the account. The client emphasizes that the offer is not tied to performance.
To comply with the CFA Institute Code and Standards, Lin must:
Explanation
Under Standard IV(B), Additional Compensation Arrangements, CFA members must disclose in writing and receive approval from their employer before accepting any compensation or benefit beyond their regular salary if it is related to services performed for a client. This includes non-monetary benefits, such as free hotel stays.
Question 5
Multiple ChoiceKevin Drake, CFA, is planning to leave his current firm, SilverOak Investments, to start his own advisory firm. Before submitting his resignation, he secretly meets with several colleagues to discuss joining his new firm and begins reaching out to his current clients, encouraging them to follow him when he departs.
According to CFA Institute Standards of Professional Conduct, which of the following actions is least likely a violation of his duty to employer?
Explanation
Under Standard IV(A), Loyalty, CFA members may prepare for a new business venture while still employed—such as leasing office space or acquiring equipment. However, actively soliciting clients or staff before resignation may breach their duty of loyalty to the current employer. Preparations must not interfere with current responsibilities or involve misappropriation of employer resources.
Question 6
Multiple ChoiceAngela Rivera, CFA, works full-time as a portfolio manager at Horizon Capital. On weekends, she helps her siblings and a few close friends review their retirement accounts and occasionally gives them informal investment suggestions. She does not charge any fees or accept any gifts or benefits in return.
According to the CFA Institute Standards of Professional Conduct, has Rivera violated her duty to Horizon Capital?
Explanation
Under Standard IV(A), Loyalty, members must disclose any independent practice for compensation that could create a conflict with their employer. Since Rivera provided free, informal advice without compensation or competitive intent, she is not in violation of the Standard.
Question 7
Multiple ChoiceOmar Singh, CFA, is the director of research at a mid-sized investment advisory firm. He assigns some of his supervisory responsibilities—such as reviewing analysts’ reports and monitoring trading recommendations—to a senior analyst on his team. Several of these analysts are CFA charterholders or candidates.
According to the CFA Institute Code and Standards, which statement best describes Singh’s supervisory responsibilities?
Explanation
Under Standard IV(C), Responsibilities of Supervisors, members and candidates who delegate supervisory duties are still ultimately responsible for ensuring that those duties are carried out properly. They must ensure that adequate policies, procedures, and oversight are in place regardless of whether the subordinates are subject to the Code and Standards.
Question 8
Multiple ChoiceDaniel Brooks, CFA, manages investment portfolios for Highpoint Advisory. One of his clients, Ms. Leung, is pleased with his service and proposes a performance-based bonus of $5,000 annually if her portfolio beats a custom blended index over the next two years. The bonus would be in addition to the standard management fees already paid by Ms. Leung. Brooks is considering accepting the arrangement.
According to the CFA Institute Code and Standards, Brooks is required to:
Explanation
Under Standard IV(B), Additional Compensation Arrangements, CFA members must obtain written consent from their employer before accepting any compensation or benefits from clients beyond what is provided by the firm. This includes disclosing the nature, amount, and duration of the arrangement to ensure the employer can assess potential conflicts of interest.
Question 9
Multiple ChoiceLiam O’Connor, CFA, is a fixed-income analyst for a bond fund. He discovers that the fund has exceeded its stated limits for investing in below-investment-grade securities, violating its stated investment mandate. After raising the issue internally and being told to ignore it by both his supervisor and compliance department, O’Connor consults legal counsel and then files a complaint with the appropriate regulatory body.
According to the CFA Institute Code and Standards, O’Connor is:
Explanation
Under Standard IV(A), Loyalty, and Standard I(A), Knowledge of the Law, CFA members are permitted—and in some cases obligated—to report unethical or illegal conduct to the appropriate authorities after internal efforts to resolve the issue fail. Whistleblowing is allowed as long as it does not violate applicable laws or regulations. O’Connor acted appropriately in protecting investor interests and upholding professional integrity.
Question 10
Multiple ChoiceDerek Nash, CFA, is a portfolio manager at Crescent Wealth Advisors. One of his clients, a luxury travel agent, offers Nash and his family a free all-inclusive vacation package if Nash is able to outperform the benchmark by 3% over the next year. Nash verbally mentions the offer to his department head, who casually acknowledges it but does not document any formal approval.
Monica Chen, CFA, an analyst at the same firm, is invited to serve as a paid advisor on the board of a private foundation. She informs the compliance department via email, explaining the compensation and expected time commitment. The department confirms in writing that her outside position is approved.
Did Nash or Chen violate CFA Institute Standards of Professional Conduct?
Explanation
Under Standard IV(B), Additional Compensation Arrangements, members must obtain written consent from their employer before accepting any additional compensation or benefits tied to services for clients. Nash failed to get written permission and therefore violated the Standard. Chen, however, complied by receiving written approval from compliance, making her actions consistent with the Standard.