1.

According to the Standards of Practice Handbook, a member with supervisory responsibilities violates
the CFA Institute Standards of Professional Conduct when:
Select exactly 1 answer(s) from the following:
A. delegating supervisory duties.
B. failing to prevent violations of the law.
C. failing to prevent violations of the CFA Code and Standards.
D. failing to establish and implement written compliance procedures.

Comment: Supervisors must take reasonable steps to detect and prevent violations of the CFA Code and
Standards. If they ignore red flags or fail to enforce compliance, they are held responsible. For example, if a
subordinate engages in insider trading and the supervisor does nothing, it constitutes a violation of Standard
IV(C).
2. Rachel Pederson, CFA, has managed the account of Olga Stefansson for the past decade and has a very
good relationship with her client. Stefansson has a beach house in the Bahamas and offers Pederson
and her family two free weeks at the house as a reward for the excellent returns generated in her
account. Pederson is so busy at work she does not tell anyone where she is going for vacation. When
accepting Stefansson's offer, Pederson least likely violates the CFA Institute Standard relating to:
Select exactly 1 answer(s) from the following:
A. Loyalty to Employer.
B. Disclosure of Conflicts.
C. Independence and Objectivity.
D. Additional Compensation Arrangements.

Comment: Loyalty: This standard focuses on acting in the employer's best interest, avoiding conflicts, and not
depriving them of skills. Accepting a vacation from a client doesn’t inherently deprive the employer of services
(assuming approved vacation time). There is no indication of competing with the employer or misusing
employer resources. This standard is least likely violated.

3. Vera Abel, CFA, is the research director for ZigZag Investments. Abel discovers one of her top
analysts trading in stocks in advance of client transactions and repeatedly warns him that this activity is
not appropriate. Does Abel violate any CFA Institute Standards of Professional Conduct?
Select exactly 1 answer(s) from the following:
A. No.
B. Yes, with respect to fair dealing.
C. Yes, with respect to responsibilities of supervisors.
D. Yes, with respect to diligence and reasonable basis.

Comment: Yes (C): Under Standard IV(C) – Responsibilities of Supervisors, a supervisor must take reasonable
steps to prevent violations. While the analyst was warned, no further action was taken to stop misconduct.
Simply warning is not enough; supervisors must enforce compliance through effective measures.

4. Romar Brockman, CFA, is a sell-side analyst. Approximately half of Brockman's compensation comes
from his firm's investment-banking division. Brockman is asked to write a report about Anacortes
Concrete (AC), an investment-banking client. Despite concerns about the slowdown in concrete
demand, Brockman issues a very positive report on AC. When issuing his report, Brockman least likely
violates the CFA Institute Standard relating to:
Select exactly 1 answer(s) from the following:
A. Loyalty to Employer.
B. Disclosure of Conflicts.
C. Loyalty, Prudence, and Care.
D. Independence and Objectivity.
Comment: A (Loyalty): The actions align with employer interests because issuing a positive report benefits the
firm’s investment banking client. This does not violate loyalty to the employer since: The actions support the
firm's business goals. Skills are being used, not withheld, for the employer’s benefit. While other ethical
standards may be violated, loyalty to the employer remains intact.

5. Kim Li, CFA, is a portfolio manager for an investment advisory firm. Li delegates some of her
supervisory duties to Janet Marshall, CFA, after educating Marshall on methods to prevent and detect
violations of the firm's compliance procedures. Despite these efforts, Li discovers that an employee
reporting to Marshall may have violated the law.
According to the Standards of Practice Handbook, Li's initial course of action must be to:
Select exactly 1 answer(s) from the following:
A. suspend the employee.
B. suspend Marshall from her supervisory duties.
C. initiate an investigation to determine the extent of the wrongdoing.
D. demand that the employee involved provide assurances that the activity will not be repeated.
Comment: The correct answer is C because it aligns with the CFA Institute Standards of Professional Conduct,
particularly Standard IV(C) – Responsibilities of Supervisors and Standard IV(A) – Loyalty to Employers.
Supervisors must take reasonable steps to detect and prevent violations. Investigating before taking action
ensures decisions are based on facts rather than assumptions, protecting both the firm and individuals involved.
Supervisors should act promptly, consult compliance/legal teams, and properly document the process.

6. According to the Standards of Practice Handbook, a member who copies employer records in violation
employer's policies may violate CFA Institute Standards unless the member's clear intent is to protect:
Select exactly 1 answer(s) from the following:
A. clients.
B. Colleagues
C. his reputation.
D. the employer's reputation.

Comment: Client Standard IV(A) – Loyalty to Employer: This correctly highlights the general prohibition on
copying employer records but clarifies an exception—when the intent is to protect clients or market integrity
rather than for personal gain.

7. A CFA charterholder has decided to revise her firm’s written compliance manual. She checks with
counsel regarding changes to applicable laws, rules, and regulations. She incorporates these changes as
well as changes to the Code and Standards in the new version and distributes copies to her staff along
with a memorandum. The memorandum states that the updated manual includes compliance procedures
designed to meet industry standards, regulatory requirements, requirements of the Code and Standards,
and circumstances of the firm. According to the Standards of Practice Handbook, did the charterholder
violate any Standard of Professional Conduct?
A. No.
B. Yes, because compliance procedures may not be designed to meet industry standards.
C. Yes, because compliance procedures should not be altered to meet the circumstances of the firm.

Comment: No (Client Standard IV(A) – Loyalty to Employer): The general prohibition on copying employer
records applies, but an exception exists if the intent is to protect clients or market integrity rather than for
personal gain. The CFA charterholder did not violate Standard IV(C) – Responsibilities of Supervisors.
Compliance procedures aligned with regulatory requirements, the Code and Standards, and the firm’s
circumstances. Industry standards were not a violation since they supplemented rather than replaced required
elements. The compliance manual was updated to reflect necessary changes. The memorandum explicitly
addressed all required components. Industry standards are not prohibited if they supplement mandatory
requirements.

8. When Jefferson Piedmont, CFA, joined Branch Investing, Branch began using a quantitative stock
selection model Piedmont had developed on his own personal time prior to his employment with
Branch. One year later when Piedmont left the firm, he found the original copy of the model he had
developed in a file at his home and presented it to his new employer, who immediately began using the
model. According to the Standards of Practice Handbook, did Piedmont violate any CFA Institute
Standards of Professional Conduct?
A. No.
B. Yes, because he misappropriated property now belonging to Branch.
C. Yes, because he failed to inform his new employer the model was the same one used by his previous
employer.

Comment: The answer is A: No, because the model was developed on personal time before joining the new
firm, making it intellectual property. Keeping an original copy and sharing it with the new employer was within
rights. No CFA Standards were violated, as no misappropriation or loyalty breach occurred

9. Ron Dunder, CFA, is the CIO for Bling Trust (BT), an investment advisor. Dunder recently assigned
one of his portfolio managers, Doug Chetch, to manage several accounts that primarily invest in thinly
traded micro-cap stocks. Dunder soon notices that Chetch places many stock trades for these accounts
on the last day of the month, towards the market’s close. Dunder finds this trading activity unusual and
speaks to Chetch who explains that the trading activity was completed at the client’s request. Dunder
does not investigate further. Six months later regulatory authorities sanction BT for manipulating
micro-cap stock prices at month end in order to boost account values. Did Dunder violate any CFA
Institute Standards of Professional Conduct?
A. No.
B. Yes, because he failed to reasonably supervise Chetch.
C. Yes, because he did not report his findings to regulatory authorities.

Comment: Violation of CFA Standard IV(C) – Responsibilities of Supervisors: Failure to reasonably supervise
despite noticing unusual trading in micro-cap stocks (a red flag for Standard II(B) – Market Manipulation).
Accepting a weak explanation without further investigation led to regulatory sanctions.

10. Madeline Smith, CFA, was recently promoted to senior portfolio manager. In her new position, Smith
is required to supervise three portfolio managers. Smith asks for a copy of her firm’s written
supervisory policies and procedures, but is advised that no such policies are required by regulatory
standards in the country where Smith works. According to the Standards of Practice Handbook,
Smith’s most appropriate course of action would be to:
A. require her firm to adopt the CFA Institute Code of Ethics and Standards of Professional Conduct.
B. require the employees she supervises to adopt the CFA Institute Code of Ethics and Standards of Professional
Conduct.
C. decline to accept supervisory responsibility until her firm adopts procedures to allow her to adequately
exercise such responsibility.
Comment: Madeline Smith must decline supervisory responsibility until her firm establishes proper compliance
procedures, as required by CFA Standard IV(C): Responsibilities of Supervisors. Without written policies, she
cannot ensure adherence to ethical and regulatory standards. Why B is correct: She cannot fulfill her duties
without adequate procedures. Why A & C are incorrect: She cannot unilaterally enforce the CFA Code or
require employees to adopt it. Thus, refusing the role until compliance measures are in place is the appropriate
action.

11. Joan Tasha, CFA, a supervisor at Olympia Advisors (OA), wrote and implemented compliance policies
at her firm. A long time OA employee, Derek Longtree, recently changed the asset allocation of a
client, which is inconsistent with her financial needs and objectives and with OA’s policies. Until now
Longtree has never violated OA’s policies. Tasha discusses the issue with Longtree but takes no further
action. Do Tasha's actions concerning Longtree most likely violate any CFA Institute Standards of
Professional Conduct?
A. No.
B. Yes, because she failed to detect Longtree’s actions.
C. Yes, because she did not take steps to ensure that the violation will not be repeated.

Comment: Joan Tasha violated Standard IV(C): Responsibilities of Supervisors by failing to ensure that Derek
Longtree’s misconduct would not be repeated. Although she discussed the issue with him, she did not take
further action, such as reporting it or strengthening compliance measures. Supervisors must make reasonable
efforts to prevent future violations, and her inaction constitutes a breach of CFA Institute Standards. Preeta
Singh, a CFA Candidate, is an asset manager employed by a fund management company managing very large
segregated pension funds. In her spare time outside of working hours, Singh likes to provide management-
consulting services to small companies to help grow their businesses, focusing on strategic planning. Singh is
paid for the consulting services and has also provided her employer information about these outside activities.
Does Singh most likely violate the CFA Code of Ethics with regard to Duties to Employers?
A. No.
B. Yes, with regard to loyalty.
C. Yes, with regard to additional compensation arrangements.

12. Preeta Singh, a CFA Candidate, is an asset manager employed by a fund management company
managing very large segregated pension funds. In her spare time outside of working hours, Singh likes
to provide management-consulting services to small companies to help grow their businesses, focusing
on strategic planning. Singh is paid for the consulting services and has also provided her employer
information about these outside activities. Does Singh most likely violate the CFA Code of Ethics with
regard to Duties to Employers?
A. No.
B. Yes, with regard to loyalty.
C. Yes, with regard to additional compensation arrangements.

Comment: Singh's actions do not violate the CFA Code of Ethics if she has disclosed her consulting activities
and obtained her employer’s consent. This aligns with Standard IV(A) - Loyalty and Standard IV(B) - Additional
Compensation Arrangements, ensuring transparency and avoiding conflicts of interest. Since her work does not
interfere with her employer's interests and has been approved, she is likely in compliance. Answer: A. No.
 13. When Abdullah Younis, CFA, was hired as a portfolio manager at an asset management firm two years
ago, he was told he could allocate his work hours as he saw fit. At that time, Younis served on the
board of three non-public golf equipment companies and managed a pooled investment fund for several
members of his immediate family. Younis was not compensated for his board service or for managing
the pooled fund. Younis’ investment returns attract interest from friends and co-workers who persuade
him to include their assets in his investment pool. Younis recently retired from all board responsibilities
and now spends more than 80% of his time managing the investment pool for which he charges non-
family members a management fee. Younis has never told his employer about any of these activities.
To comply with the CFA Institute Standards of Professional Conduct with regards to his business
activities over the past two years, Younis would least likely be required to disclose which of the
following to his employer?
A. Board activities
B. Family investment pool management
C. Non-family member management fees
Comment: Abdullah Younis, CFA, engaged in board activities, managed a family investment pool, and charged
fees for managing non-family investments. Board activities (A): Least likely to require disclosure as they were
unpaid, no longer ongoing, and posed minimal conflict. Family investment pool (B): Likely requires disclosure
due to potential conflicts with professional duties. Non-family management fees (C): Requires disclosure as
financial incentives may conflict with employer interests. Correct Answer: A

14. Kim Klausner, CFA, monitors several hundred employees as head of compliance for a large investment
advisory firm. Klausner has always ensured that his company’s compliance program met or exceeded
those of its competitors. Klausner, who is going on a long vacation, has delegated his supervisory
responsibilities to Sue Chang. Klausner informs Chang that her responsibilities include detecting and
preventing violations of any capital market rules and regulations, and the CFA Institute Code and
Standards. Klausner least likely violated the CFA Institute Standards of Professional Conduct by failing
to instruct Chang to also consider:
A. firm policies.
B. legal restrictions.
C. industry standards.
.Comment: Kim Klausner, CFA, delegated his compliance responsibilities to Sue Chang without instructing her
to consider firm policies, legal restrictions, or industry standards. Among these, failing to instruct Chang to
consider industry standards (Option C) is the least likely to violate the CFA Institute Standards of Professional
Conduct. This is because industry standards are generally aspirational best practices, whereas legal restrictions
and firm policies are more directly tied to compliance and ethical obligations under the CFA Institute Standards.

15. Jan Loots, CFA, quit his job as a portfolio manager at an investment firm with whom he had a non-
solicitation agreement he signed several years ago. Loots received permission to take his investment
performance history with him and also took a copy of the firm's software-trading platform.
Subsequently, Loots sent out messages on social media sites announcing he was looking for clients for
his new investment management firm. Access to Loots's social media sites is restricted to friends,
family, and former clients. Loots least likely violated the CFA Institute Standards of Professional
Conduct concerning his:
A. non-solicitation agreement.
B. investment performance history.
C. trading software.
Comment: . Since Jan Loots had explicit permission to take and use his investment performance history, he did
not violate CFA Institute’s Standards of Professional Conduct regarding misrepresentation or duties to his
employer.

16. Which of the following statements is most likely true?

A. Members cannot pursue a competing independent practice that could result in
compensation or other benefits.
B. Members and candidates are required to disclose any compensation arrangement to their employers that
involves performing competing tasks or services that their employers can charge for, only if they occur during
work hours.
C. Members can pursue a competing independent practice that could result in compensation or other benefits as
long as they have their employer's written consent.
Comment: Option C is correct because professional standards, like the CFA Institute's Code of Ethics, permit
independent practice that competes with an employer, as long as written consent is obtained. This ensures
transparency and prevents conflicts of interest

17. Which of the following is least likely accurate?

A. A violation of ethical standards reflects not only an employee's conduct but also that of their supervisor.
B. It is not the supervisor’s responsibility to ensure that investment reports are compliant with the Code and
Standards.
C. Reasonable supervision is typically determined as a function of the number of employees supervised and the
specific jobs being done.

Comment: The statement is incorrect because supervisors are responsible for ensuring that their team’s work,
including investment reports, complies with relevant codes and standards. Ethical compliance is crucial in
finance, and supervisors play a key role in maintaining these standards.

18. Tim Peters, CFA is a Senior Investment Manager at Staples Asset Managers. He will be leaving the
company at the end of the month to join Grey Capital as a Chief Investment Officer where among his
major responsibilities will be to increase the funds under management. During his last day at Staples
Asset Managers, Tim contacts two of the clients he brought to Staples and informs them of the services
he would offer them if they moved their accounts to Grey Capital. Under the CFA Code and Standards,
Tim Peters most likely ?
A. violated Standard IV(A)– Duties to employers.
B. did not violate Standard IV(A)– Duties to employers because he brought the clients Staples Asset Managers.
C. did not violate Standard IV(A)– Duties to employers because he had already resigned from Staples Asset
Managers.

Comment: Supervisors play a crucial role in ensuring that their team's work adheres to the CFA Institute's Code
of Ethics and Standards of Professional Conduct. They are responsible for overseeing investment reports,
research, and recommendations to ensure compliance with ethical and regulatory requirements. If a violation
occurs within their team, supervisors can be held accountable if they failed to establish or enforce adequate
compliance procedures. Therefore, saying that supervisors are not responsible for compliance is inaccurate, as it
is an essential part of their duties.

The following case relates to questions #19 & 20:

Frank Litman, CFA, was recently hired as a portfolio manager by Twain Investments, a fairly small asset
management firm. Since attending graduate school 10 years ago, Litman has managed a limited number of
accounts belonging to friends. All of these accounts are currently too small to meet Twain's minimum balance
requirement of $5 million and generate only modest fees for Litman. Litman disclosed the arrangement to the
human resource (HR) manager when he interviewed for his position with Twain. The HR manager agreed that
the accounts were too small and would probably never be large enough to meet Twain's minimum size
requirement. After accepting the position with Twain, Litman met with each of the friends for whom he manages
portfolios. He recommended they find another financial adviser. Litman's friends argued that a different
adviser would undoubtedly charge higher fees and asked Litman to continue managing their money as a
personal favor. Following the meetings, Litman sent separate letters to both the Twain HR manager and his
friends explaining his employment relationship and that he also manages some small portfolios for a few of his
friends.

19. According to CFA Institute's Standards of Practice Handbook, which of the following additional pieces
of information would Litman least likely be required to supply to Twain to comply with his duty to
employer? The:
A. duration of the investment management agreements with friends.
B. amount and type of compensation received from friends.
C. names of his friends who are his clients.
Comment: To ensure compliance with the CFA Institute Standards of Professional Conduct, Litman should: A.
Obtain written consent from Twain and his friends. This is because Standard IV(B) – Additional Compensation
Arrangements requires members to disclose and obtain consent for any compensation or benefit received beyond
what is provided by their employer. Managing portfolios for both Twain (presumably a client or employer) and
friends could create a conflict of interest. Obtaining written consent ensures transparency and adherence to
ethical standards.

20. With regard to managing portfolios for Twain as well as for his friends, Litman should most likely
undertake which of the following to ensure compliance with CFA Institute Standards of Professional
Conduct? He should:
A. obtain written consent from Twain and his friends.
B. inform his immediate supervisor.
C. do nothing further.
Comment: To ensure compliance with CFA Institute Standards of Professional Conduct, Litman must take
appropriate steps to manage conflicts of interest. The correct answer is A. Obtain written consent from Twain
and his friends, as this ensures transparency and compliance with ethical standards.
 21. Elias Nano, a recent MBA graduate and a CFA Level II candidate, is an unpaid summer intern with
Patriarch Investment Counsel and expects to be offered a full-time paid position in the fall. Through his
efforts, he is able to convince some family members and friends to become clients of the firm, and he
now assists with the management of their accounts. His supervisor congratulates him and states: “These
clients are the foundation from which you will be able to build your career as an investment adviser.”
After working hard all summer, Nano is told that Patriarch will not be able to offer him a paid position.

Nano interviews with a number of firms and tells each one about the accounts that he is managing and expects
to be able to bring with him. Because he was merely an intern at Patriarch, he does not think he owes any
particular loyalty to Patriarch. He gains further assurance that he can keep the clients from the fact that his
former supervisor implied that these were Nano’s clients.
Nano subsequently joins Markoe Advisors as an assistant director with supervisory responsibilities. Markoe
Advisors is an investment management firm that advertises that it provides customized portfolio solutions for
individual and institutional clients. As a matter of policy, Markoe does not reject as a client any individual
meeting the account minimum size. Markoe has two strategies—aggressive growth equity and growth equity—
and is always fully invested. Nano asks his family and friends to transfer their accounts from Patriarch to
Markoe.

Does Nano comply with the CFA Institute Standards of Professional Conduct when he asks his clients to
transfer their accounts to Markoe Advisors?
A. No
B. Yes, because he contacted the clients after leaving Patriarch
C. Yes, because he was an intern and not a paid employee of Patriarch
Comment; is correct. Standard IV(A) prohibits employees from soliciting the clients of employers prior to, but
not subsequent to, their departure.

22. Scott Campbell, CFA, develops a complex quantitative model for selecting mortgage bonds. Campbell
is careful to document in writing all assumptions in the model and his reasoning for the assumptions.
Another firm offers Campbell a position leading the startup of a mortgage bond research department. In
his new position, Campbell creates a similar model and supporting documents. Does Campbell violate
any CFA Institute Standards?

Select exactly 1 answer(s) from the following:

A. No.

B. Yes, with respect to record retention.

C. Yes, with respect to loyalty to employer.

D. Yes, with respect to preservation of confidentiality.

Comment: Scott Campbell did not violate any CFA Standards because he created a new but similar model at his
new firm using his own skills and knowledge. As long as he did not take proprietary information or confidential
data from his previous employer, there is no breach of loyalty or confidentiality.

23. Erin Mutini, CFA, a South African resident, is an employee of Oakwood Asset Management (OAM),
an asset management company based in South Africa. OAM manages and sells its branded mutual
funds and unit trusts through agents across Africa. Mutini was recently sent to Uganda to oversee
OAM's new agency agreement with Rayne Brokers (Rayne), a licensed Ugandan stock brokerage
company with a strong retail customer base. Mutini next meets with Rayne supervisors to specifically
discuss their roles in upholding the CFA Standards. She informs them they are responsible for the
prevention of any violations of laws, rules, regulations or the Code and Standards by the staff directly
under their supervision. To make their job easier, instead of focusing equally on all of the requirements
Mutini suggests the supervisors should concentrate on:

• Communicating compliance policies and procedures to all covered staff;

• Undertaking periodic reviews to ensure procedures are followed; and
• Enforcing investment related policies.
In her meeting with Rayne supervisors, Mutini is least likely correct with regard to:
A. communicating with staff.
B. undertaking periodic reviews.
C. enforcing investment related policies.
Comment: Mutini is least correct about C. enforcing investment-related policies because supervisors must
ensure compliance with all laws, regulations, and ethical standards, not just investment-related ones.

24. Ashraf Omar, CFA, recently joined the Sahara Manufacturing Company (Sahara) as its CFO. The
company is planning an initial public offering (IPO). The proceeds of the IPO will be used to finance
the purchase of plant and machinery. Omar was recruited on the basis of his extensive investment
banking background, having successfully supervised ten IPOs over the last five years at Falcon
Investment Bank (Falcon).
Sahara, a family-owned company, had a very good reputation until recently when an ongoing tax
dispute became public. The dispute may lead the tax authority to impound plant assets. Furthermore,
outdated
plant equipment is causing production disruption and declining profit margins. The CEO is looking to
retire because he is not able to manage the current challenges.
Omar creates a detailed plan to help manage the IPO process. He plans on using an extensive checklist
and numerous templates he developed while at Falcon. Omar decides to employ the same external
service providers he used at Falcon to handle the legal, accounting, and marketing aspects required for
a successful IPO. He considers these external providers the best in the industry, and their fees are
competitive. He will also work with his previous contacts at the regulatory authority during the
approval process.

How will Omar’s plan for the IPO most likely violate the CFA Institute Standards of Professional Conduct?
Through his intended use of:

A. regulatory contacts.
B. checklists and templates.
C. external service providers.
Comment: Omar's plan most likely violates Standard I(B) – Independence and Objectivity by leveraging
previous regulatory contacts, which could lead to undue influence or preferential treatment during the IPO
approval process.

25. Kuznetsov is a portfolio manager for a large investment firm that encourages its employees to sell
proprietary investment products to their clients. Kuznetsov complies with this directive and within a
year becomes the firm’s top seller of these investment vehicles. He receives stellar performance
reviews and a large bonus. But Kuznetsov eventually determines that the firm’s investment products
are underperforming and more expensive than other outside investment options that are suitable for his
clients and present a better chance for growth. So, he sharply cuts back on purchasing the firm’s
investment products for his clients. Although his supervisor puts increasing pressure on him to resume
selling the firm’s products, Kuznetsov refuses. He complains several times to management that he is
being pressured to place the firm’s interest above his client’s interests. He surreptitiously records
several conversations with his supervisor and makes copies of client records that document what he
considers to be his supervisor’s inappropriate conduct. When management ignores his complaints and
his supervisor begins giving Kuznetsov poor performance reviews, he files a complaint with the local
regulator against his supervisor and his firm, providing the recordings and copies of client files as
evidence. After the firm becomes aware of Kuznetsov’s actions, he is fired. Kuznetsov’s actions are:

A. inappropriate because he failed to keep client information confidential.

B. appropriate because he is protecting client interests.

C. inappropriate because he violated his duty of loyalty to his employer by taking his dispute with his supervisor
to the regulator, exposing the employer to financial and reputational harm.

D. inappropriate because he could have met his ethical obligation by dissociating from the unethical activity of
his supervisor.

Comment: Kuznetsov acted ethically by prioritizing clients' interests but violated confidentiality by sharing
client records with regulators. While reporting misconduct was justified, he should have done so without
breaching client confidentiality. Therefore, Option A is correct.