CFA Program — Ethical and Professional Standards

Question 1

A firm's supervisor is aware that a subordinate has, on a few occasions, exceeded client-approved risk limits but has not taken any corrective action because the trades were profitable. This failure to act is most likely inconsistent with:

• A) Standard IV(C) – Responsibilities of Supervisors, since outcomes (profitability) do not excuse a failure to enforce compliance with client mandates
• B) Standard I(A) – Knowledge of the Law, applied only to the subordinate
• C) Standard VII(B) – Reference to CFA Institute
• D) No standard, since no client complained

Question 2

A CFA charterholder serves on the investment committee of a nonprofit organization in a volunteer capacity and receives no compensation, but the organization's holdings include a significant position in a company the charterholder's firm is currently underwriting. The most appropriate action is to:

• A) Say nothing, since the role is unpaid and therefore not covered by the Code and Standards
• B) Disclose the potential conflict to the relevant parties (the nonprofit committee and/or employer, as applicable) consistent with Standard VI(A) – Disclosure of Conflicts
• C) Resign from the CFA Program immediately
• D) Automatically recuse the entire investment committee from all future decisions

Question 3

A firm's marketing materials for a new multi-asset fund include hypothetical back-tested performance figures presented alongside actual live performance figures, without clearly distinguishing which figures are hypothetical versus actual. This presentation is most likely a violation of:

• A) Standard I(C) – Misrepresentation and Standard III(D) – Performance Presentation, which require fair, accurate presentation of performance and prohibit misleading statements
• B) Standard IV(A) – Loyalty only
• C) Standard II(B) – Market Manipulation
• D) Standard VI(C) – Referral Fees

Question 4

A wealth manager discovers that a long-standing client has become cognitively impaired and appears to be making investment decisions inconsistent with her documented long-term objectives, possibly under the influence of a new acquaintance. The manager's most appropriate initial course of action, consistent with the Code and Standards, is to:

• A) Immediately transfer full discretion to the acquaintance if the client requests it
• B) Continue acting in the client's best interest, which may include engaging a trusted contact or firm resources designated for such situations, while being mindful of the duty of loyalty to the client
• C) Terminate the relationship immediately with no further action
• D) Ignore the concern, since it is outside the manager's professional responsibility

Question 5

In preparing an Investment Policy Statement (IPS) for a new private wealth client, a CFA charterholder relies solely on a brief phone conversation and does not document the client's risk tolerance, liquidity needs, or constraints in writing. This approach is most inconsistent with:

• A) Standard III(A) – Loyalty, Prudence, and Care, and Standard V(B) – Communication with Clients, which call for a thorough, documented understanding of the client's objectives and constraints
• B) Standard I(A) – Knowledge of the Law only
• C) Standard IV(B) – Additional Compensation Arrangements
• D) Standard VII(A) – Conduct as Participants in CFA Institute Programs

Question 6

A portfolio manager for an institutional client base recommends a strategic asset allocation shift for all clients into a new asset class that the manager has recently begun personally investing in heavily, without disclosing this personal stake to clients. This is most likely a violation of:

• A) Standard VI(A) – Disclosure of Conflicts, since the manager's personal position could bias the recommendation
• B) Standard III(C) – Suitability only
• C) Standard V(B) – Communication with Clients only
• D) No standard, since asset allocation advice is not investment-specific

Question 7

A trust officer serving as co-trustee of a family trust consistently defers investment decisions to the more assertive co-trustee, a family member, without independently evaluating whether the resulting allocation is prudent for the trust's stated objectives. This is most likely inconsistent with:

• A) Standard VI(B) – Priority of Transactions, since no personal trading is described.
• B) Standard V(B) – Communication with Clients, since the issue does not concern client communication.
• C) No Standard, since co-trustees are permitted to defer entirely to one another by design.
• D) Standard III(A) – Loyalty, Prudence, and Care, since a fiduciary in a co-trustee role retains an independent duty to exercise prudent judgment rather than simply deferring to a co-fiduciary.

Question 8

An analyst covering the banking sector obtains, through a properly authorized expert-network call with a former bank employee (no longer with the company and under no confidentiality obligation to it), granular details about the bank's current loan-loss reserve methodology that are not publicly disclosed. Using this information, along with public data, to refine an earnings estimate is most likely:

• A) Permissible, provided the specific information obtained is not itself material nonpublic information about the company's current financial results (as opposed to general methodology), and the source is not violating any duty of confidentiality by sharing it.
• B) A clear violation of Standard II(A), since any information from a former employee about their prior employer is automatically prohibited.
• C) Permissible only if the analyst first obtains written permission from the bank's investor relations department.
• D) A violation of Standard I(B), Independence and Objectivity, exclusively.

Question 9

A CFA charterholder providing private wealth advice discloses to a prospective client, in general terms, that the firm receives payments from certain third-party fund providers whose products it recommends, but does not specify which particular funds generate these payments or their approximate magnitude. Is this disclosure most likely adequate under the Standards?

• A) No, because such arrangements are absolutely prohibited under the Standards regardless of disclosure.
• B) No, adequate disclosure under Standard VI(A)/VI(C) generally requires enough specificity (nature and, where feasible, approximate magnitude of the compensation) for the client to meaningfully evaluate the potential conflict, not merely a generic acknowledgment that such arrangements exist.
• C) Yes, since any disclosure of a conflict at all, however general, fully satisfies the Standards.
• D) Yes, but only if the client explicitly asks for further specifics before proceeding.

Question 10

A wealth management firm's research on tax-efficient charitable giving strategies is shared, without attribution, in a competitor's client newsletter after a former employee moved firms and reused the material largely verbatim. Which Standard does the former employee's conduct most likely violate?

• A) Standard VI(B) – Priority of Transactions, which addresses personal trading, not research content.
• B) Standard II(B) – Market Manipulation, since no market activity is involved.
• C) Standard I(C) – Misrepresentation, since presenting another firm's work as one's own original analysis constitutes a form of plagiarism.
• D) Standard IV(C) – Responsibilities of Supervisors, since supervision is not the issue here.

Question 11

An institutional portfolio manager overseeing a defined benefit pension plan is instructed by the plan sponsor's CFO to shift a significant allocation into the sponsor's own corporate bonds, which would improve the sponsor's balance sheet optics but does not clearly benefit the plan's beneficiaries. Under Standard III(A), the manager should most appropriately:

• A) Implement the allocation immediately, since the sponsor is technically the manager's direct client and contractual counterparty.
• B) Implement the allocation only if the sponsor provides written indemnification against any resulting losses.
• C) Refuse to discuss the matter further with the sponsor under any circumstances.
• D) Recognize that the duty of loyalty runs primarily to the plan's beneficiaries rather than the sponsor, and decline to implement the allocation unless it can be independently justified as consistent with the plan's investment objectives and beneficiaries' interests.

Question 12

A private wealth advisor manages assets for a high-net-worth family and also personally invests, on a modest scale, in a private real estate fund that the advisor has begun recommending to several of these clients. The advisor has not disclosed this personal investment. This is most likely a violation of:

• A) Standard VI(A) – Disclosure of Conflicts, since the advisor's personal stake in a fund being actively recommended to clients is a material conflict requiring disclosure regardless of the investment's modest size.
• B) Standard III(C) – Suitability only, since the fund itself may still be suitable for the clients.
• C) No standard, since the advisor's personal investment size is immaterial relative to the clients' portfolios.
• D) Standard V(C) – Record Retention, since the issue is a failure to document the recommendation.

Question 13

A CFA charterholder managing a family office learns that a beneficiary of a family trust has been secretly withdrawing funds beyond what the trust document authorizes, using her position as a trust officer at another institution to conceal the activity. The charterholder is not employed by that institution. Which of the following is most consistent with the charterholder's obligations under the Code and Standards?

• A) The charterholder has no obligation of any kind, since the wrongdoing occurs entirely outside her own firm.
• B) The charterholder must personally confront the trust officer directly before taking any other action.
• C) The charterholder should ignore the matter entirely, since only regulators can address such issues.
• D) While the charterholder has no direct supervisory authority over the other institution's trust officer, becoming aware of clear, serious misconduct affecting the trust's beneficiaries should prompt consideration of appropriate escalation, such as informing the family office's own compliance function or legal counsel, consistent with broader obligations to protect client interests and market integrity.

Question 14

A CFA charterholder is asked by a journalist to comment publicly on a competitor firm's investment performance, based only on the charterholder's general impressions rather than any rigorous independent analysis of the competitor's actual results. The charterholder agrees and offers a specific, quantified critique. This is most likely a concern under:

• A) No standard, since commenting to journalists is entirely outside the scope of the Code and Standards.
• B) Standard VI(B) – Priority of Transactions, which is unrelated to public commentary of this kind.
• C) Standard III(E) – Preservation of Confidentiality, since no confidential information is at issue.
• D) Standard V(A) – Diligence and Reasonable Basis, since offering a specific, quantified professional opinion without adequate independent analysis or verification does not meet the standard's requirement for a reasonable and adequate basis.

Question 15

A portfolio manager for an institutional client discovers, after the fact, that a trade error resulted in the client's account being overcharged a small amount in commissions due to a system glitch, an amount the manager judges to be immaterial relative to the account's overall size. Under the Code and Standards, the manager should most appropriately:

• A) Disclose the error and correct it (reimbursing the client) regardless of its relative immateriality, since knowingly failing to correct a known billing error is inconsistent with the honesty and fair-dealing principles underlying the Standards.
• B) Take no action, since the amount involved is immaterial relative to the account's overall size.
• C) Correct the error only if the client independently discovers and raises the issue first.
• D) Simply adjust future billing to informally offset the error, without disclosing the original mistake to the client.

Question 16

A CFA charterholder who recently passed the Level III exam but has not yet been awarded the charter (pending completion of the work experience requirement) includes "CFA (pending)" in her email signature and professional biography. Is this most likely appropriate under Standard VII(B)?

• A) This is a matter of purely personal stylistic preference with no relevance to the Standards.
• B) This is likely inappropriate, since Standard VII(B) generally does not permit implying charter status has been earned before it is formally awarded; more appropriate language would accurately describe her as having passed all three levels of the exam while the charter itself remains pending.
• C) Yes, since "CFA (pending)" clearly and adequately conveys that the charter has not yet been formally awarded.
• D) Yes, provided she has passed all three exam levels, regardless of how the reference is phrased.

Question 17

A wealth manager for high-net-worth families is asked by a longtime client to serve, unpaid, as a co-executor of the client's estate after the client's eventual death, in addition to continuing to manage the client's investments during her lifetime. Accepting this role most likely requires the manager to primarily consider:

• A) Whether serving as co-executor could create a conflict of interest with the ongoing investment management relationship (for example, incentives around fees or asset retention) that would need to be disclosed to the client and other family members.
• B) No consideration is needed, since serving as an unpaid executor can never create any conflict of interest.
• C) The manager must decline automatically, since serving simultaneously as executor and investment manager is categorically prohibited.
• D) Only the client's current spouse needs to be informed, with no need to inform other family members or beneficiaries.

Question 18

A boutique wealth management firm's standard client agreement discloses that the firm may receive revenue-sharing payments from certain mutual fund families whose funds it recommends, listing the general fund families involved but not the specific dollar amounts received in the prior year. A new client asks for the specific dollar figures. The firm should most appropriately:

• A) Provide the information only if the client threatens to terminate the relationship.
• B) Disclosure obligations under the Standards are entirely satisfied by initial account-opening paperwork and never require any follow-up regardless of client inquiries.
• C) Provide the requested specific information to the extent reasonably available, since a client's direct request for greater detail about a disclosed conflict should generally be accommodated to support fully informed decision-making.
• D) Decline to provide any further detail, since the general disclosure already given fully satisfies all disclosure obligations regardless of client requests.

Question 19

A CFA charterholder who recently sat for the Level III exam posts detailed descriptions of several specific item-set vignettes and their correct answers on a public online study forum to help other candidates preparing for a future administration. This conduct most likely violates:

• A) Standard III(E) – Preservation of Confidentiality, because the vignettes described nonpublic corporate information
• B) Standard I(C) – Misrepresentation, because the descriptions may have been factually inaccurate
• C) No standard, since sharing exam experiences to help future candidates is encouraged
• D) Standard VII(A) – Conduct as Participants in CFA Institute Programs, because candidates and charterholders may not disclose specific exam content protected by CFA Institute's exam confidentiality agreement

Question 20

A wealth adviser refers a client to an estate-planning attorney and receives a percentage of the attorney's resulting fee, but never mentions this arrangement to the client. The most appropriate corrective step, consistent with the Code and Standards, would have been to:

• A) Disclose the referral fee arrangement to the client before or at the time of the referral, consistent with Standard VI(C) – Referral Fees
• B) Decline to ever refer clients to outside professionals under any circumstances
• C) Disclose the arrangement only if the client specifically asks about it
• D) Retain the fee without disclosure, since referrals are outside the scope of investment advice

Question 21

Shortly after a client formally complains about the suitability of a recommendation, an adviser deletes the internal emails documenting the original risk-tolerance discussion and the rationale for the recommendation, before the firm's minimum retention period has elapsed. This conduct most likely violates:

• A) Standard VI(A) – Disclosure of Conflicts, because the deletion itself created a new conflict of interest
• B) Standard V(C) – Record Retention, because members must maintain records supporting investment actions for the required period regardless of a pending complaint
• C) Standard II(A) – Material Nonpublic Information, because the emails contained confidential client data
• D) Standard IV(C) – Responsibilities of Supervisors, exclusively, since only supervisors are subject to record retention duties

Question 22

An adviser recommends a complex alternative investment fund to an institutional client based entirely on the fund sponsor's marketing brochure and a short phone call with the sponsor's sales representative, without independently reviewing the fund's audited financials, underlying holdings, or fee structure. This conduct most likely violates:

• A) Standard I(D) – Misconduct, exclusively, since no dishonesty was involved
• B) Standard III(C) – Suitability, exclusively as it relates to the client's tax situation
• C) Standard V(A) – Diligence and Reasonable Basis, because the recommendation lacks an independent, adequate basis for the investment action
• D) Standard VI(C) – Referral Fees, because the sponsor's sales representative was compensated for the introduction

Question 23

A relationship manager at a wealth management firm directs a portion of a client's assets into a third-party private credit fund and receives an undisclosed finder's fee from the fund sponsor for the referral. The manager does not inform the client or the firm of this arrangement. This is most likely a violation of:

• A) Standard I(A) – Knowledge of the Law, applicable only to the fund sponsor
• B) Standard III(E) – Preservation of Confidentiality, since the fund's terms were shared with the client
• C) Standard VII(A) – Conduct as Participants in CFA Institute Programs
• D) Standard IV(B) – Additional Compensation Arrangements, because compensation from a party other than the employer related to services for a client must be disclosed to the employer

Question 24

A portfolio manager at a private bank learns in the morning that a large institutional client will submit a block order to buy a significant position in a mid-cap stock later that day. Before entering the client's order, the manager buys the same stock for her personal account. This conduct most likely violates:

• A) Standard VI(B) – Priority of Transactions, since client transactions must be given priority over personal trades in the same security
• B) Standard V(C) – Record Retention, since the personal trade was not properly logged
• C) Standard III(D) – Performance Presentation, since the manager's personal returns were misstated
• D) Standard VII(B) – Reference to the CFA Designation, since the manager referenced her charter in the trade

Question 25

Shortly after learning that a regulator has opened an inquiry into the firm's investment recommendations for an institutional client, a compliance officer instructs staff to dispose of files documenting the rationale for those recommendations, citing routine storage-cost management. This conduct most likely violates:

• A) No standard, since routine storage-cost management is a legitimate business justification
• B) Standard V(C) – Record Retention, because records supporting investment recommendations must be maintained for the required period, particularly once relevant to a pending inquiry
• C) Standard IV(C) – Responsibilities of Supervisors, exclusively, since only supervisory duties were implicated
• D) Standard II(A) – Material Nonpublic Information, because the disposed records contained confidential data

Question 26

A portfolio manager enters a large client's order to sell a thinly traded bond position and, within minutes of entering the client order but before it is filled, enters an order to sell the same bond from her personal account, receiving a better execution price than the client ultimately receives. This conduct most likely violates:

• A) Standard VI(B) – Priority of Transactions, because personal transactions must not be structured to disadvantage client transactions in the same security
• B) Standard III(D) – Performance Presentation, because the manager's personal account performance was misstated
• C) Standard V(B) – Communication with Clients, because the client was not told about the bond's illiquidity
• D) Standard I(D) – Misconduct, exclusively, since no client funds were directly taken

Question 27

A private banker accepts an all-expenses-paid international trip from an external asset management firm whose funds he regularly recommends to clients, without seeking his employer's consent or disclosing the trip to his employer. This conduct most likely violates:

• A) Standard III(E) – Preservation of Confidentiality, because the trip involved confidential fund information
• B) Standard II(B) – Market Manipulation, because the trip could influence the price of the recommended funds
• C) Standard VII(A) – Conduct as Participants in CFA Institute Programs
• D) Standard IV(B) – Additional Compensation Arrangements, because benefits from third parties related to the member's employment activities require written consent from the employer

Question 28

An investment consultant advising a pension fund on manager selection accepts a hedge fund candidate's self-reported, marketing-provided performance track record at face value and recommends the fund to the pension fund's board without independently verifying the figures with the fund's third-party administrator or auditor. This conduct most likely violates:

• A) Standard III(B) – Fair Dealing, exclusively, since only one board was involved
• B) Standard I(C) – Misrepresentation, exclusively, if the marketing figures later prove accurate
• C) Standard V(A) – Diligence and Reasonable Basis, because the recommendation lacks independent verification and an adequate basis for the manager selection
• D) Standard VI(C) – Referral Fees, because the hedge fund candidate's marketing materials were provided free of charge

Question 29

A consultant conducting a manager search on behalf of a pension fund's investment committee receives a referral fee from one of the candidate managers being evaluated in the search, but does not disclose this arrangement to the pension fund. This conduct most likely violates:

• A) Standard VI(C) – Referral Fees, because clients must be able to evaluate any partiality that results from compensation received in connection with a recommendation
• B) Standard I(A) – Knowledge of the Law, exclusively, since referral fees are governed only by local securities law
• C) Standard III(E) – Preservation of Confidentiality, because the candidate manager's fee structure was disclosed to the consultant
• D) Standard VII(B) – Reference to CFA Institute, because the consultant referenced the manager's credentials

Question 30

After sitting for the Level III exam, a charterholder privately coaches a junior colleague who will sit for a future administration of the same exam by describing, from memory, the specific item-set scenarios and correct answer choices she recalls from her own exam. This conduct most likely violates:

• A) Standard IV(A) – Loyalty, because the coaching occurred outside normal working hours
• B) Standard I(C) – Misrepresentation, because her memory of the exam content may not be perfectly accurate
• C) No standard, since mentoring junior colleagues preparing for the exam is a normal professional courtesy
• D) Standard VII(A) – Conduct as Participants in CFA Institute Programs, because disclosing specific exam content breaches the confidentiality obligations every candidate agrees to

Question 31

A CFA charterholder's LinkedIn profile lists an advanced professional credential from an unaccredited online program using language that closely mimics the phrasing CFA Institute uses to describe the CFA charter, without directly claiming to hold the CFA designation for that credential. This practice is most likely inconsistent with:

• A) No standard, since the charterholder does not explicitly claim to hold a CFA charter for the unaccredited credential
• B) Standard IV(C) -- Responsibilities of Supervisors
• C) Standard V(C) -- Record Retention
• D) Standard I(C) -- Misrepresentation, because the phrasing could reasonably mislead readers into believing the credential carries a rigor or recognition comparable to the CFA Program

Question 32

A fund's marketing brochure describes the strategy as 'index-plus,' implying it will track a benchmark closely while adding modest alpha, when in fact the fund has historically taken large, unconstrained active bets with tracking error far exceeding what 'index-plus' typically implies. This is most likely a violation of:

• A) Standard I(C) -- Misrepresentation, because the description creates a false impression of the fund's actual investment process and risk profile
• B) No standard, since the description is a marketing characterization rather than a specific numerical claim
• C) Standard III(C) -- Suitability, exclusively, with no bearing on Standard I(C)
• D) Standard VI(B) -- Priority of Transactions

Question 33

An investment bank's equity research department is under pressure from the firm's investment banking division to issue a favorable rating on a company that is a current banking client and a prospective client for an upcoming secondary offering. To comply with Standard I(B), the firm should most appropriately:

• A) Permit the practice as long as the favorable rating is issued only after the offering closes
• B) Maintain effective information barriers ('firewalls') between research and investment banking, and ensure analyst compensation is not directly tied to specific banking transaction outcomes
• C) Allow investment banking to review and approve research reports before publication to ensure consistency with the firm's client relationships
• D) Tie analyst bonuses directly to the success of banking deals involving the companies they cover, to align incentives

Question 34

A sell-side equity analyst is invited by a corporate issuer to a lavish, all-expenses-paid multi-day site visit that goes well beyond what is reasonably necessary to conduct due diligence, with the issuer's IR team also arranging significant leisure activities. Consistent with Standard I(B), the analyst should most appropriately:

• A) Accept the trip but simply avoid writing a favorable report on the issuer afterward
• B) Accept the trip only if the issuer agrees not to disclose it publicly
• C) Decline the excessive portions of the trip or pay for them personally/have the firm pay, accepting only reasonable, business-related hospitality necessary to the research process
• D) Accept the full trip without concern, since attending is standard industry practice for sell-side analysts

Question 35

A portfolio manager becomes aware that a colleague on a different team is routinely mismarking illiquid securities to overstate a fund's NAV, a practice that violates securities regulations. The manager has no supervisory authority over the colleague. The most appropriate action under Standard I(A) is to:

• A) Do nothing, since the manager lacks supervisory authority over the colleague and therefore bears no responsibility
• B) Confront the colleague directly and personally correct the NAV calculations without informing compliance
• C) Wait until performance reporting season to see if the mismarking self-corrects
• D) Disassociate from the violation by reporting it through appropriate internal compliance channels, since knowingly participating in or failing to address a known violation may itself expose the manager to a breach of Standard I(A)

Question 36

A CFA charterholder works in a country where local securities law permits a common industry practice that is stricter than what CFA Institute's Code and Standards require, but a separate local regulation explicitly prohibits a different practice that the Code and Standards would otherwise allow. The charterholder should:

• A) Follow the stricter of the applicable local law and the Code and Standards on each specific point, since Standard I(A) requires adherence to the more restrictive requirement when law and the Code diverge
• B) Follow the Code and Standards exclusively in all cases, since CFA Institute's requirements always override local law regardless of strictness
• C) Follow local law exclusively in all cases, since local law always takes precedence over the Code and Standards
• D) Choose whichever standard is more convenient to implement given client preferences

Question 37

A portfolio manager overhears, during a crowded elevator ride at an industry conference, two employees of a publicly traded company discussing an unannounced, financially significant contract loss in detail specific enough to be considered material. The manager was not the intended recipient of the conversation and made no attempt to eavesdrop. The manager's most appropriate action regarding trading the company's securities is to:

• A) Trade freely on the information immediately, since it was overheard accidentally rather than solicited from an insider.
• B) Refrain from trading or causing others to trade on the information and, if appropriate, make reasonable efforts to determine whether the information has otherwise become public before resuming normal trading in the security.
• C) Trade only a small position, since accidental receipt of material nonpublic information exempts the manager from Standard II(A).
• D) Immediately publish the information to all clients so that everyone benefits equally from the information.

Question 38

A wealth management firm's marketing materials present a composite performance track record for its "balanced growth strategy" that includes only the returns of accounts that remained in the strategy for the full three-year period shown, excluding several accounts that terminated early due to poor performance. This presentation is most likely inconsistent with:

• A) Standard III(D) – Performance Presentation, since selectively excluding terminated, underperforming accounts from a composite creates a survivorship-biased and potentially misleading impression of the strategy's actual historical performance.
• B) No standard, since firms have complete discretion over which specific accounts to include in a composite performance presentation.
• C) Standard VI(A) – Disclosure of Conflicts, since the primary issue is an undisclosed conflict of interest rather than the fairness of the performance presentation itself.
• D) Standard V(B) – Communication with Clients, exclusively, since Standard III(D) applies only to publicly registered investment products, not to composite marketing materials.

Question 39

A supervisor at a broker-dealer becomes aware that one of her subordinates has, on several occasions, recommended unsuitable, high-commission products to elderly clients. The supervisor verbally warns the subordinate but takes no further action, does not document the warning, and does not monitor whether the behavior continues. Six months later, the subordinate is found to have continued the practice with additional clients. Under Standard IV(C) – Responsibilities of Supervisors, the original supervisor is most likely:

• A) Fully insulated from any responsibility, since she did provide an initial verbal warning to the subordinate.
• B) Potentially in violation of her supervisory duties, since an adequate response requires not merely a warning but also appropriate follow-up, such as documentation, increased monitoring, or escalation, to reasonably prevent continuation of the misconduct.
• C) Not responsible in any respect, since supervisory duties under Standard IV(C) apply only to the subordinate's direct manager at the time of any subsequent violation, not to a prior supervisor who issued a warning.
• D) Automatically deemed to have violated Standard I(D) – Misconduct instead, rather than Standard IV(C), since the underlying issue involves client suitability rather than pure supervision.

Question 40

A portfolio manager personally wants to purchase shares of a small-cap company that her firm's research team is about to recommend to clients in a report scheduled for release the next morning. Under Standard VI(B) – Priority of Transactions, the most appropriate course of action is to:

• A) Purchase the shares for her personal account immediately, since she is a senior manager and personal accounts are generally exempt from priority-of-transactions restrictions.
• B) Wait until clients have had an adequate opportunity to act on the recommendation (consistent with the firm's personal trading policy) before purchasing the shares for her own account.
• C) Purchase the shares for her personal account first, and then ensure her own trade receives a better average execution price than client trades placed afterward.
• D) Recommend that her family members purchase the shares on her behalf immediately, since Standard VI(B) applies only to the manager's own accounts and not to accounts of related persons.

Question 41

A junior analyst is preparing a research report that closely mirrors the structure, key arguments, and several specific phrases from a sell-side report she read online, without attribution, before adding her own updated financial projections. The most appropriate characterization of this conduct under the Code and Standards is that it:

• A) Is acceptable because the analyst's financial projections were independently calculated and updated.
• B) Is acceptable because attribution requirements under Standard I(C) apply only to verbatim numerical data, not to analytical structure or written phrasing.
• C) Likely violates Standard I(C) – Misrepresentation, since presenting another party's work, analysis, or specific phrasing as one's own, even while adding some original updated figures, constitutes a form of plagiarism.
• D) Is acceptable, since Standard I(C) applies only to public statements to clients and never to internally prepared research reports.

Question 42

A CFA charterholder managing a discretionary account routes a large block trade through a broker-dealer that provides the manager's firm with a complimentary industry research subscription of modest value, unrelated to investment decision-making, in addition to reliable execution and competitive commission rates on the trade. Is this arrangement most likely consistent with the charterholder's best-execution obligations under Standard III(A)?

• A) No, because any use of client brokerage to obtain any benefit for the manager's firm is strictly prohibited under all circumstances.
• B) Yes, without any further consideration, since research subscriptions are always presumed to directly benefit the client regardless of relevance.
• C) Yes, provided the manager still selects the broker primarily based on execution quality and total transaction cost being competitive, and the ancillary benefit does not compromise the duty to seek best execution for the client.
• D) No, because soft-dollar-type arrangements of any kind became entirely prohibited under Standard III(A) regardless of the client benefit obtained.