CFA Institute CFA Institute Certifications CFA-LEVEL-1 Questions & Answers

• Question 3721:

  Which of the following persons does AIMR hold most accountable for fiduciary duties owed to clients?

  A. Investment Advisors

  B. Brokers

  C. None of these answers

  D. Dealers

  Correct Answer: C

  AIMR's Code and Standards do not make distinctions among brokers, dealers and investment advisors when it comes to fiduciary duties toward customers. All members must comply with the conduct required of them by the Code and Standards or applicable law, whichever is higher.

• Question 3722:

  Standard III includes which of the following?

  A. None of these answers

  B. Use of Professional Designation

  C. Disclosure of Conflicts to Employer

  D. Fair Dealing

  E. Prohibition against Plagiarism

  F. All of these answers

  Correct Answer: C

  Standard III deals with Obligation to Inform Employer of Code and Standards, Duty to Employer, Disclosure of Conflicts to Employer, Disclosure of Additional Compensation Arrangements and Responsibilities of Supervisors.

• Question 3723:

  All of the following statements about a member's use of clients' brokerage commissions are true except

  A. client brokerage commissions may be directed to pay for the investment manager's operating expenses.

  B. client brokerage commissions should be commensurate with the value of the brokerage and research services received.

  C. client brokerage commissions may be used by the member to pay for securities research used in managing the client's portfolio.

  D. client brokerage commissions should be used by the member to ensure that fairness to the client is maintained.

  Correct Answer: A

  This question deals with Standard IV (B.1), Fiduciary Duties and the specific topic of soft dollars. All the answers deal with the use of client brokerage commissions and the criteria for their use - (1) fairness to the client and (2) commensurate with the value of the services provided. The only statement that is not true is that client brokerage commissions may not be directed to pay the investment manager's operating expenses.

• Question 3724:

  Level ________ verification applies to specific composites.

  A. 0

  B. IV

  C. II

  D. I

  E. III

  Correct Answer: C

  Level I verification applies to all firm composites. Level II verification requires a Level I verification at least on the specific composites being verified at Level II. (Note: There are only two levels of verification.)

• Question 3725:

  Standard V (A), Prohibition against Use of Material Nonpublic Information, states that the test for determining if a tipper is breaching a fiduciary duty

  A. is whether the tippee benefits directly or indirectly from the disclosure.

  B. is whether the tipper benefits directly or indirectly from the disclosure.

  C. is whether the tipper benefits directly from the disclosure.

  D. is whether the insider benefits directly from the disclosure.

  E. none of these answers.

  Correct Answer: B

  Standard V (A), Prohibition against Use of Material Nonpublic Information, states that the test for determining if a tipper is breaching a fiduciary duty is whether the tipper benefits directly or indirectly from the disclosure. The three types of personal benefits are: 1. pecuniary benefit, 2. a quid pro quo between the insider and recipient, and 3. a gift of confidential information to a relative. An insider who selectively discloses material nonpublic information without a legitimate business purpose may be found to have breached a fiduciary duty.

• Question 3726:

  Level ________ verification assures that all of the firm's actual, discretionary, fee-paying portfolios are included in at least one composite.

  A. V

  B. II

  C. IV

  D. I

  E. III

  Correct Answer: D

  Level I Verification requires that each of the firm's discretionary, fee-paying portfolios is included in at least one composite and that the firm's procedures for assigning portfolios to composites are reasonable and have been consistently applied over time.

• Question 3727:

  Which of the following can be found in Standard III?

  A. Members shall not misrepresent investment performance.

  B. Members shall exercise diligence and thoroughness in making investment recommendations or in taking investment actions.

  C. Members shall not participate in any professional conduct involving dishonesty, fraud, deceit, etc.

  D. Members shall deliver a copy of the Code to their employer.

  E. Members shall not knowingly participate or assist in any violation of laws, rules, or regulations.

  Correct Answer: D

  Standard III states that members shall deliver a copy of the Codes and Standards to their employer if the employer does not have a copy.

• Question 3728:

  Miller heads the research department of a large brokerage firm. The firm has many analysts, some of whom are subject to the Code and Standards. If Miller delegates some supervisory duties, which statement best describes her responsibilities under the Code and Standards?

  A. Miller's supervisory responsibilities do not apply to those subordinates who are not subject to the Codes and Standards.

  B. Miller no longer has supervisory responsibility for those duties delegated to her subordinates.

  C. Miller retains supervisory responsibility for those duties despite her delegation of some duties.

  D. AIMR's Standards prevent Miller from delegating supervisory duties to subordinates.

  Correct Answer: C

  Under Standard III (E), Responsibilities of Supervisors, members may delegate supervisory duties to subordinates but such delegation does not relieve members of their supervisory responsibilities. Moreover, whether or not Miller's subordinates are subject to AIMR's Code and Standards is irrelevant to her supervisory responsibilities. Thus, Miller still retains supervisory responsibilities.

• Question 3729:

  Various countries' securities laws permit a manager to pay up for goods and services without violating the manager's fiduciary duty, so long as the requirements of the law are followed. Each of the following are typical requirements, except

  A. the manager's soft-dollar practice must be disclosed.

  B. the compensation received for engaging in the paying up must be reported in writing to the manager's employer.

  C. the commission paid must be reasonable in relation to the research and execution services received.

  D. the goods or services purchased must be for "research service."

  E. at all times, the manager must seek best price and execution.

  Correct Answer: B

  When paying up for goods and services, the requirements to be met include:

  -ensuring that the goods or services purchased must be for "research service;"

  -

  the commission paid must be reasonable in relation to the research and execution services received;

  -

  the manager's soft-dollar practice must be disclosed, and

  -at all times, the manager must seek best price and execution. However, there is no requirement for any disclosure of compensation to the manager's employer.

• Question 3730:

  Which of the following statements is/are correct under the Code and Standards?

  I. AIMR members are prohibited from undertaking independent practice in competition with their employer.

  II. Written consent from the employer is necessary to permit independent practice that could result in compensation or other benefit in competition with a member's employer.

  III. Written consent from the outside prospective client is necessary to permit independent practice that could result in compensation or other benefit in competition with a member's employer.

  IV.

  Members are prohibited from making arrangements or preparations to go into a competitive business before terminating their relationship with their employer.

  A.

  II, III and IV only.

  B.

  I and IV only.

  C.

  IV only.

  D.

  II and III only.

  Correct Answer: D

  This question pertains to Standard III (B), which states that members may undertake independent practice that may result in compensation or other benefit in competition with a member's employer, so long as they obtain written consent from both their employer and those for whom they undertake the independent practice. Statements II and III are consistent with this Standard. Statement I is incorrect because the Standards do not completely prohibit independent practice. Also, Statement IV is incorrect because the Standards allow members to make arrangements or preparations to go into competitive business so long as those arrangements do not interfere with their duty to their current employer.