Question 1
Multiple ChoiceA CFA charterholder receives a request for client records as part of an official investigation by the CFA Institute Professional Conduct Program (PCP). The charterholder is not otherwise obligated by law to disclose the information. According to the Standards, the charterholder is least likely violating client confidentiality if the information is shared with:
Explanation
Standard III(E), Preservation of Confidentiality, permits disclosure of client information to the CFA Institute’s Professional Conduct Program during investigations, even when not required by law, unless doing so would itself violate local regulations. Disclosure to other third parties, including journalists or other clients, is a violation unless specifically authorized by the client or required by law.
Question 2
Multiple ChoiceA CFA charterholder says during a webinar, "Our balanced income portfolio returned 10% this year, which proves that our investment strategy consistently outperforms the market." The statement is based on accurate performance for that specific portfolio over the past year, but the charterholder does not mention other portfolios or long-term performance history.
According to Standard III(D), Performance Presentation, this statement is:
Explanation
Standard III(D) requires that performance information be presented in a fair, accurate, and complete manner. Highlighting one year's return from a single portfolio and using it to imply consistent or firm-wide outperformance is misleading and violates the Standard, even if the return itself is accurate. Members must avoid cherry-picking favorable results without appropriate context.
Question 3
Multiple ChoiceA CFA charterholder is reviewing a client’s portfolio when she receives a formal request from the CFA Institute Professional Conduct Program (PCP) to provide records related to the client’s investment history. The charterholder is not otherwise required by law to disclose this information.
Under Standard III(E), Preservation of Confidentiality, the charterholder:
Explanation
Standard III(E) allows members and candidates to disclose confidential client information when requested by the CFA Institute Professional Conduct Program as part of an investigation. This is an exception to the general duty to preserve confidentiality and does not require client permission unless local law prohibits disclosure.
Question 4
Multiple ChoiceVanessa Kim, CFA, is advising a client who is preparing to sell a business and retire abroad. During a lunch break, Kim casually mentions the client’s plans to a colleague in another department whose sibling works in international relocation services. Kim hopes the contact might help the client navigate the move but has not obtained the client’s permission to share this information.
Has Kim violated the Standard concerning preservation of confidentiality?
Explanation
Standard III(E), Preservation of Confidentiality, requires CFA members to keep all client information confidential unless the client has given permission or disclosure is required by law. Even if well-intentioned, sharing non-public personal information with someone not involved in the client relationship—without explicit consent—is a violation of this standard.
Question 5
Multiple ChoiceAccording to Standard III(C), Suitability, which of the following is least likely to be a factor that should influence an investment recommendation?
Explanation
Standard III(C), Suitability, requires members to ensure that investment recommendations are based solely on the client’s financial situation, investment experience, and objectives. The investment professional’s personal benefit—such as compensation or commissions—must never take precedence over the client’s best interests.
Question 6
Multiple ChoiceDavid Chen, CFA, keeps a record of personal client details, including anniversaries and favorite restaurants, to enhance client relationships. He decides to hire a third-party concierge service to deliver personalized gifts on special occasions, using the information from his private records. Chen does not inform his clients of this arrangement.
Which of the following actions is most likely a violation of Standard III(E), Preservation of Confidentiality?
Explanation
Standard III(E) requires members to preserve the confidentiality of client information. Sharing personal client data with an outside party—such as a concierge service—without client permission may expose sensitive information and violate the standard. Personal use of such data internally or for minor, direct gestures is generally acceptable if confidentiality is maintained.
Question 7
Multiple ChoiceMaya Thompson, CFA, is contacted by the CFA Institute Professional Conduct Program during an ethics investigation. They request documents related to a client account she managed. Thompson declines, stating that she has a verbal confidentiality agreement with the client and does not want to breach their trust.
According to Standard III(E), Preservation of Confidentiality, Thompson may withhold the requested information from CFA Institute:
Explanation
Standard III(E) requires that members cooperate with the CFA Institute Professional Conduct Program in investigations, even if the information is confidential. The CFA Institute maintains confidentiality protections during the investigative process. Therefore, neither personal relationships nor private agreements override the obligation to provide information when requested by the Professional Conduct Program.
Question 8
Multiple ChoiceDaniel Rivera, CFA, suspects that one of his clients is using investment accounts to launder money. Rivera is not completely certain but believes there is enough evidence to warrant concern. He considers what action to take under the CFA Institute Code and Standards.
According to Standard III(E), Preservation of Confidentiality, which of the following is NOT prohibited?
Explanation
Standard III(E) allows members to disclose confidential client information when required by law or when the member has reasonable grounds to believe that illegal activity is taking place. Disclosure to CFA Institute or government authorities is permitted under these conditions. Therefore, neither action listed is prohibited, and "None of these actions are prohibited under the Standard" is the correct answer.
Question 9
Multiple ChoiceLuis Moreno, CFA, is advising a retired couple with low risk tolerance and limited investment experience. Moreno recommends allocating 30% of their portfolio to a small-cap biotech stock currently being underwritten by his firm, and 70% to high-grade municipal bonds. He does not inform the couple that his firm is involved in the underwriting of the equity investment.
Which CFA Institute Standard(s) has Moreno most likely violated?
Explanation
Moreno failed to disclose a material conflict of interest—his firm’s underwriting relationship with the recommended company—violating Standard VI(A). Additionally, recommending a high-risk equity investment to conservative investors is inappropriate, violating Standard III(C), Suitability. Members must ensure recommendations align with clients' financial profiles and disclose all conflicts that could impair their objectivity.
Question 10
Multiple ChoiceAlec Tran, CFA, established a moderate-risk portfolio for his client, Dana Liu, five years ago. Since the account was opened, Liu has received quarterly performance statements and annual newsletters encouraging clients to report any changes in financial goals or risk tolerance. However, Tran has not spoken with Liu directly or conducted any formal portfolio review or update during this period.
Under the CFA Institute Code and Standards, Tran has:
Explanation
Standard III(C), Suitability, requires members and candidates to make a reasonable effort to ensure that each investment recommendation or action is suitable to the client’s financial situation and objectives. This includes conducting periodic reviews—typically at least annually—even if the client does not proactively reach out. Relying solely on firm-generated communications is not sufficient.