Ethics

CFA Level II
#1

…Supervisor sent her a memo asking if the following firm policies need to be updated to comply with the CFA Institute Research Objectivity Standards: 1. Base compensation for analysts is based on the quality of research performed. Year-end bonuses may be adjusted based on an analyst’s work with investment banking and corporate finance teams. 2. In their relationships with corporate issuers, analysts are prohibited from either directly or indirectly promising favorable reports or specific price targets or threatening negative reports. 3. In their relationships with corporate issuers, analysts are prohibited from sharing with or communicating to a subject company, prior to publication, any section of a research report. Question In response to the supervisor’s question regarding the firm’s policies on research objectivity, Natali’s best response would be: A. Both policies 1 and 2 are consistent with the current Standards. B. Both policies 1 and 2 are inconsistent with the current Standards and require changes. C. The policy on analyst compensation requires changes, but the policy regarding relationships with corporate issuers is consistent with current Standards. D. The policy regarding relationships with corporate issuers requires changes, but the policy on analyst compensation is consistent with current Standards.

#2

1 not good 2 is good 3 not good so only two is correct.

#3

this is from the sample Exam 3 isn’t it. the answer that the cfa gave was wrong - so you can give yourself an extra 3.33% … :slight_smile: mcpass has it bang on! 1. is not ok - analysts compensation should not be tied directly with investment banking involvement - however it can be tied on investment banking performance (read this in cfai text somewhere) 2. is OK - they are not supposed to be issuing reports with inclinations of what the recommendation/price etc will be 3. is not ok - they can send the section of the report that has factual information - don’t have to withhold the entire report from the subject company

#4

It’s from Sample Exam 2. I’d put “spoiler” in the subject.