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41 Cards in this Set
- Front
- Back
- 3rd side (hint)
Six components of the Code of Ethics |
1) Act with integrity, competence, diligence, respect & ethically in all professional settings |
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Seven standards of professional conduct |
1) Professionalism |
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Potential Client Constraints |
1) Liquidity Needs |
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Soft Dollar Standards |
1) Brokerage is always the property of the client |
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Permissable Research under soft dollar standards - process to determine |
1) Define the product/service |
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Objectives of the Research Objectivity Standards |
1) Prepare, research, recommendations, investment action with the client's interest first |
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Old Man vs. New Prudent Investor Rule |
1) Use of Total Return - income + capital growth, not just preservation of principal |
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Knowledge of the Law - Professionalism |
1) understand & comply with all laws, rules, and regulations - always the more strict (even if it is the CFA code of standards) |
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Independence & Objectivity - Professionalism |
1) Use reasonable care to exercise independence & objectivity in professional activities |
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Misrepresentation - Professionalism |
1) Do not misrepresent yourself, firm, your work - intent to deceive is a violation |
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Misconduct - Professionalism |
Do not engage in activities that would reflect poorly on you, the firm, or clients - this covers activities that may not be illegal, but could adversely affect a member's ability to perform |
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Material Nonpublic Information |
Do not act on nonpublic material information that could affect an investment's value - the def of material - info is nonpublic until is has been made available to the marketplace |
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Mosaic Theory |
No violation when an analyst combines non-material nonpublic info with public info to reach a conclusion |
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Market Manipulation - Integrity of Capital Markets |
1) Do not distort or artificially inflate trading with intent to mislead |
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Loyalty, Prudence & Care - Duties to Clients |
1) Act with reasonable care & exercise prudent judgement with the client's interest before all else |
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Fair Dealing - Duties to Clients |
1) Deal fairly & objectively with all clients when making recommendations & taking action - fair does not necessarily mean equal (can have vary levels of service) |
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Suitability - Duties to Clients |
Create an IPS for client suitability guidelines and update it regularly (at least annually) |
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Performance Presentation - Duties to Clients |
When communicating portfolio performance make reasonable efforts to ensure it is fair, accurate, and complete |
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Preservation of Confidentiality - Duties to Clients |
Keep current/prospective/former client info confidential unless illegal activities are suspected, disclosure is required by law, or current/prospect/former client allows disclosure |
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Loyalty - Duties to Employers |
Act for the benefit of employer & do not deprive employer of the advantage of your abilities |
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Additional Compensation Arrangements - Duties to Employers |
No gifts, benefits, compensation, or consideration are to be accepted without consent from all parties - includes direct & indirect compensation |
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Responsibilities of Supervisors - Duties of Employers |
Must make reasonable efforts to detect & prevent violations applicable laws, rules, regulations, and code and standards by anyone subject to your supervision or authority |
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Diligence & Reasonable Basis - Investment analysis, recommendations, and action |
Use diligence, independence, and thoroughness when making and analyzing recommendations and taking action |
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Record Retention |
Maintain all records supporting analysis, recommendations, and actions to support reasons for analyst conclusions & actions |
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Priority of Transactions - Conflicts of Interest |
Investment transactions for clients & employers must have priority over transactions in which a member is the beneficiary |
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Referral Fees - Conflicts of Interest |
Disclosure of any compensation, consideration, benefit received from, or paid to, others for the recommendation of products/services must be disclosed prior to entering into any formal agreement for services should update referrals at least quarterly |
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Conduct as a member of candidate of the CFA program |
Do not compromise the reputation or integrity of the CFA institute or designation or exams by: |
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Reference to the CFA institute, designation, or program |
Do not misrepresent or exaggerate the meaning or implications of membership |
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Proprietary Soft Dollar arrangements |
Executing broker in-house research, in addition to third-party research |
Broker: any person or entity that provides securities execution services |
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Principal Soft Dollar arrangements |
research obtained through "spreads" or "discounts" generated by trades on a principal basis; |
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Allowable Research within Soft Dollar arrangements |
must provide lawful and appropriate assistance to directly assist the investment manager in the investment decision-making process (not the in the management of the investment firm) |
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Soft Dollar disclosure requirement |
must provide the member’s client with a means of evaluating the member’s soft dollar practices and how client brokerage is used, with the availability of additional information when requested by the client |
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Steps to conclude whether research is permissible; whether it can be purchased with client brokerage: |
1) Does it meet the definition of allowable research? |
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Mixed Use Research |
paid with client brokerage and by the investment manager - must be able to make reasonable, justifiable, and document the allocation of cost; and the portion paid by the client must go towards the investment decision making process; |
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Client-Directed Brokerage |
brokerage is the asset of the client, not the investment manager |
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Research Objectivity Standards |
a. to prepare research reports, make investment recommendations, and take investment actions and develop policies, procedures, and disclosure that always place the interests of investing clients before their employees’ or the firm’s interests |
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Requirements of Research Objectivity Standards |
a. Research Objectivity Policy – written, distributed firm-wide and to clients, supervised and attested to annually |
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Best Practice - Trading Allocation |
a. Obtain advance indications of client interest for new issues |
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Basic Principles of the New Prudent Investor Rule |
a. Diversification is fundamental to risk minimization and is therefore ordinarily required of trustees |
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General fiduciary standards to adhere to as a Trustee |
a. Must exercise care, skill (can outsource), and caution (protecting principal and generating a reasonable return), and must manifest loyalty and impartiality (solely in the interest of the beneficiaries) |
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Key Factors to consider as a Trustee |
a. General economic conditions |
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