A few more ethics questions

A few more ethics questions from schweser … 1. Sue Parsons, CFA, works full-time as an investment advisor for the Malloy Group, an asset management firm. To help pay for her children’s college expenses, Parsons wants to engage in independent practice in which she would advise individual clients on their portfolios. She would conduct these investment activities only on weekends. Which of the following statements about Standard IV(A), Loyalty to Employer, is most accurate? Standard IV(A): A)requires Parsons to obtain written consent from both Malloy and the persons from whom she undertakes independent practice. B)requires Parsons to notify Malloy in writing about her intention to undertake an independent practice. C)does not require Parsons to notify Malloy of preparing to undertake independent practice under the current conditions. 2. Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. He places trades for the fund with Worldwide Brokerage. Worldwide suggests to Calaveccio that they are willing to provide him with additional compensation for order flow. Is this permissible under the Code and Standards? A)Yes, if he discloses the arrangement in writing to TrustCo. B)No, such an arrangement is in violation of the Code and Standards. C)Yes, if he receives written consent from TrustCo and discloses the arrangement to his clients and prospects. 3. A manager has pointed out that his firm has experienced significant expansion over the past few years. Until recently, its Legal Department was responsible for the firm’s compliance activities. Now, however, the legal and compliance functions have been separated. A compliance officer has been formally designated and a comprehensive compliance program has been put in place. In order to function effectively, the compliance officer must have the authority: A)to hire and fire personnel. B)to affect, control, and guide employee behavior and to respond to employee misconduct. C)which is consistent with the most senior partner or executive officer in the firm. 4. Nick O’Donnell, CFA, unsuspectingly joins the research team at Wickett & Co., an investment banking firm controlled by organized crime. None of the managers at Wickett are CFA Institute members. Because of his tenuous situation at Wickett, O’Donnell begins making preparations for independent practice. He knows he will be terminated if he informs management at Wickett that he is preparing to leave. Consequently, he determines that “if he can just hang on for one year, he will likely have a client base sufficient for him to strike out on his own.” This action is: A)not a violation of his duty to employer. B)a violation of his fiduciary duties. C)a violation of his duty to disclose conflicts to his employer. 5.An analyst writes a report and includes the forecasts of an econometric model developed by the firm’s research department. The analyst identifies the source of the forecast and includes all the relevant statistics concerning the model and his opinion of the model’s accuracy. With respect to Standard V(A), Diligence and Reasonable Basis, the analyst has: A)violated the Standard by including quantitative details in a report. B)complied with the Standard. C)violated the Standard by not testing the model himself. 6. An analyst notices that for most years that a given class of assets has an abnormally high rate of return, the asset class often has an abnormally low rate of return the next year. Based upon this information, according to Standard V(A), Diligence and Reasonable Basis, the analyst can recommend: A)short selling assets that have had a good previous year to all clients. B)an increased allocation of Treasury bills (T-bills) for all portfolios of assets that have increased dramatically in the previous year. C)neither of these choices Cheers :slight_smile:

  1. A 2) C 3) B 4) A 5) B 6) C No.4 reminds me of that movie “The Firm” with Tom Cruise. I wonder what they mean by the word terminated here…

A B B B B C If i had to mark 4 B’s in a row on the exam…i would seriously panic and re consider my answers :wink:

B - written conscent needed C - B C B C

C B B B B C I agree with heer :slight_smile:


a b b b b c

I will let you guys debate these answers. The schweser answers are 1. C 2. C 3. B 4. A 5. B 6. C Cheers :slight_smile:

A B B A B C 4/6…For 1 one should take approval as it might create conflicts, instead of being on weekends.

Gauvravku: Q1, the reason is …she wants to…she hasnt started yet.

ok, got it. Thanks. These guys want to test attention to detail also :slight_smile:

for Qn 2 - Isn’t this arrangement wrong ? Just because he accepts that he is doing a wrong thing and discloses it to everyone, will it absolve him of his duties? for qn 4 - Ok, the firm is run by crooks ( I Sometimes think Even my firm is J ). But while on job, he should be loyal to the firm right? targeting firm’s client while on job is wrong… And potentially lethal too in this case :slight_smile: Comments?

i dont get no 2. how can he receive add compensation from the broker? it looked clear violation to me…