CFA Ethics and Professional Standards Exam
Review: Case Studies, Standards Application, and
Compliance Scenarios with Verified Answers
Sharon Fields, CFA, provides her two weeks' notice and prepares over the next two weeks to transition
into her own business. She clears her personal computer of contacts and turns over all client records to
her employer. Her contract requires a two-year waiting period before contacting clients located in her
client file. After her final day with her employer, she updates her personal pages on social media sites
and promptly receives several calls and inquiries for her services from former clients and friends. What
is the most appropriate course of action for Ms. Fields in relation to previous clients?
A) Ms. Fields must wait two years to accept them as clients
B) Ms. Fields may accept business from clients contacted through public records
C) Ms. Fields must notify her former employer of contacts made and request permission to move
forward with their business - ✔✔B) Ms. Fields may accept business from clients contacted through
public record
EXP
Standard IV(A) Duties to Employers includes several criteria regarding the obligation of the employee to
the employer. Ms. Fields properly waited until she was no longer employed to accept business from
former clients, and only through her personal social media account. She did not utilize her previous
employer's records or resources.
In its marketing materials, a firm states that it is in compliance with Global Investment Performance
Standards (GIPS), except for the firm's real estate portfolio. The firm clearly states in a footnote that the
real estate portfolio is not in compliance with GIPS. Which of the following best describes the firm's GIPS
compliance?
A) The firm is noncompliant as a firm cannot claim "partial" GIPS compliance
,B) The firm is fully compliant as the requirements for GIPS compliance do not extend to real estate
C) The firm is fully compliant as the disclosure in the footnote of the exception meets GIPS requirements
- ✔✔A) The firm is noncompliant as a firm cannot claim "partial" GIPS compliance
A firm cannot claim partial compliance.
Mark Kaplan, CFA, with Convenience Marketing Group, is trying to raise capital to purchase a new home.
He intends to sell his shares in a stock, contrary to the advice in which he is presently providing to
clients. Concerns arise, and Mark is questioned regarding potential information he may be withholding
to warrant the sale of stock. Which action most likely would have prevented the questions regarding the
sale of stock?
A) Mark should disclose to clients the special situation
B) Mark should disclose to the employer the special situation
C) Convenience Marketing should prohibit further purchase of stock by employees to prevent conflicts of
interest - ✔✔B) Mark should disclose to the employer the special situation
There is essentially no conflict as long as the sale is reported to the firm in advance, and the reason is
indicated. Recommendations to purchase the stock indicated can still be provided.
Which of the following sanctions is least likely to be imposed for violating CFA Institute Code of Ethics or
Standards of Professional Conduct?
A) Prosecution
B) Public censure
C) Suspension of CFA® membership - ✔✔A) Prosecution
, CFA Institute Code of Ethics and Standards of Professional Conduct are not themselves laws. Therefore,
one cannot be prosecuted merely for violating them. However, a violation may also violate a law or
governmental regulation which could result in prosecution.
Tim Young, CFA® and analyst at Parkman Investments, received a USD 25 baseball game ticket from the
chief executive of a company he covers. Tim was surprised to receive the ticket in the mail, and he called
to thank the executive. The executive suggested they ride together to the game in his limousine. After
the game, they enjoyed drinks at the country club to celebrate the victory of their favorite team. Tim
paid for his drinks. How did Tim most likely violate Standard I(B): Independence and Objectivity?
A) He accepted the tickets
B) He accepted a ride to the game in the limousine
C) He enjoyed drinks with the executive after the game - ✔✔B) He accepted a ride to the game in the
limousine
Tim violated Standard I(B) by accepting a luxurious ride from the chief executive. CFA Institute members
and candidates are prohibited from accepting gifts, benefits, or compensation that are likely to
compromise their independence and objectivity. Tim did not violate Standard I(B) by accepting the USD
25 ticket because CFA Institute Standards allow the acceptance of gifts under USD 50 if approved.
Joyce Henderson, CFA, is the funds manager with Blue Sky Investments. The company has recently
decided to begin an investment fund composed solely of stocks that have the Singapore stock exchange
as their primary exchange. Blue Sky currently does not have the expertise to manage the investments
for such a fund, so Joyce sent requests for proposals (RFP) to appropriate fund managers in Singapore.
Based on the responses she received, Joyce selected Singapore Global Investments to manage Blue Sky's
Singapore fund. Which of the following is most likely true?
A) Joyce has satisfied Standard III(B): Fair Dealing by basing her decision solely on the responses to her
RFP
B) Joyce has not satisfied Standard III(B): Fair Dealing by limiting her potential managers to those located
only in Singapore
Review: Case Studies, Standards Application, and
Compliance Scenarios with Verified Answers
Sharon Fields, CFA, provides her two weeks' notice and prepares over the next two weeks to transition
into her own business. She clears her personal computer of contacts and turns over all client records to
her employer. Her contract requires a two-year waiting period before contacting clients located in her
client file. After her final day with her employer, she updates her personal pages on social media sites
and promptly receives several calls and inquiries for her services from former clients and friends. What
is the most appropriate course of action for Ms. Fields in relation to previous clients?
A) Ms. Fields must wait two years to accept them as clients
B) Ms. Fields may accept business from clients contacted through public records
C) Ms. Fields must notify her former employer of contacts made and request permission to move
forward with their business - ✔✔B) Ms. Fields may accept business from clients contacted through
public record
EXP
Standard IV(A) Duties to Employers includes several criteria regarding the obligation of the employee to
the employer. Ms. Fields properly waited until she was no longer employed to accept business from
former clients, and only through her personal social media account. She did not utilize her previous
employer's records or resources.
In its marketing materials, a firm states that it is in compliance with Global Investment Performance
Standards (GIPS), except for the firm's real estate portfolio. The firm clearly states in a footnote that the
real estate portfolio is not in compliance with GIPS. Which of the following best describes the firm's GIPS
compliance?
A) The firm is noncompliant as a firm cannot claim "partial" GIPS compliance
,B) The firm is fully compliant as the requirements for GIPS compliance do not extend to real estate
C) The firm is fully compliant as the disclosure in the footnote of the exception meets GIPS requirements
- ✔✔A) The firm is noncompliant as a firm cannot claim "partial" GIPS compliance
A firm cannot claim partial compliance.
Mark Kaplan, CFA, with Convenience Marketing Group, is trying to raise capital to purchase a new home.
He intends to sell his shares in a stock, contrary to the advice in which he is presently providing to
clients. Concerns arise, and Mark is questioned regarding potential information he may be withholding
to warrant the sale of stock. Which action most likely would have prevented the questions regarding the
sale of stock?
A) Mark should disclose to clients the special situation
B) Mark should disclose to the employer the special situation
C) Convenience Marketing should prohibit further purchase of stock by employees to prevent conflicts of
interest - ✔✔B) Mark should disclose to the employer the special situation
There is essentially no conflict as long as the sale is reported to the firm in advance, and the reason is
indicated. Recommendations to purchase the stock indicated can still be provided.
Which of the following sanctions is least likely to be imposed for violating CFA Institute Code of Ethics or
Standards of Professional Conduct?
A) Prosecution
B) Public censure
C) Suspension of CFA® membership - ✔✔A) Prosecution
, CFA Institute Code of Ethics and Standards of Professional Conduct are not themselves laws. Therefore,
one cannot be prosecuted merely for violating them. However, a violation may also violate a law or
governmental regulation which could result in prosecution.
Tim Young, CFA® and analyst at Parkman Investments, received a USD 25 baseball game ticket from the
chief executive of a company he covers. Tim was surprised to receive the ticket in the mail, and he called
to thank the executive. The executive suggested they ride together to the game in his limousine. After
the game, they enjoyed drinks at the country club to celebrate the victory of their favorite team. Tim
paid for his drinks. How did Tim most likely violate Standard I(B): Independence and Objectivity?
A) He accepted the tickets
B) He accepted a ride to the game in the limousine
C) He enjoyed drinks with the executive after the game - ✔✔B) He accepted a ride to the game in the
limousine
Tim violated Standard I(B) by accepting a luxurious ride from the chief executive. CFA Institute members
and candidates are prohibited from accepting gifts, benefits, or compensation that are likely to
compromise their independence and objectivity. Tim did not violate Standard I(B) by accepting the USD
25 ticket because CFA Institute Standards allow the acceptance of gifts under USD 50 if approved.
Joyce Henderson, CFA, is the funds manager with Blue Sky Investments. The company has recently
decided to begin an investment fund composed solely of stocks that have the Singapore stock exchange
as their primary exchange. Blue Sky currently does not have the expertise to manage the investments
for such a fund, so Joyce sent requests for proposals (RFP) to appropriate fund managers in Singapore.
Based on the responses she received, Joyce selected Singapore Global Investments to manage Blue Sky's
Singapore fund. Which of the following is most likely true?
A) Joyce has satisfied Standard III(B): Fair Dealing by basing her decision solely on the responses to her
RFP
B) Joyce has not satisfied Standard III(B): Fair Dealing by limiting her potential managers to those located
only in Singapore
