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Free Test Prep CFA-Level-I Exam Braindumps (page: 104)

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Members can comply with Standard IV (A.1) by undertaking the following:

  1. Analyzing basic investment characteristics
    II. Analyzing portfolio needs of the client
    III. Establishing compliance procedures to prevent violations of Code and Standards IV. Maintaining files to support investment recommendations
  2. I, II & IV
  3. II & IV
  4. I & IV
  5. I & II
  6. II, III & IV
  7. III & IV
  8. I, II, III & IV
  9. II & III

Answer(s): A

Explanation:

Condition III applies to compliance with Standard III (E). For Standard IV (A.1), which deals with the Investment Process, members should investigate the investment's basic characteristics by looking at research reports.
Also, a member has a continuing responsibility to review a client's needs and circumstances to determine whether or not the risk exposure of the total portfolio serves the client's needs. Finally, a member must maintain research files to justify investment decisions later under scrutiny.



Standard V of the Standards of Professional Conduct deals with Relationships with and Responsibilities to ________.

  1. Supervisors
  2. Employers
  3. Employees
  4. the Investing Public
  5. None of these answers

Answer(s): D

Explanation:

Standard V of the Standards of Professional Conduct deals with Relationships with and Responsibilities to the Investing Public.



Cornelius is a portfolio manager with Apex Investments, an investment advisory firm. Cornelius has, over the years, developed a special symbiotic relationship with Mike Milken, the owner of Milk 'em, Inc., a small brokerage firm. Cornelius puts subtle pressure on the trading desk at Apex to execute its trades through Milk 'em, thus generating brokerage revenue for Mike. In return, Mike recommends the services of Apex Investments to many of its clients. This arrangement is not disclosed to either the senior management at Apex nor to any of the clients. It has been observed by many at Apex Investments that the commissions charged by Milk 'em are 10-15% higher than those by other brokers. However, Cornelius has justified the higher costs by pointing to the extra revenue-flow from Milk 'em. Cornelius has:

  1. not violated any AIMR standards.
    II. violated Standard III (C) - Disclosure of Conflicts to Employer.
    III. violated Standard IV (B.8) - Disclosure of Referral Fees.
    IV. violated Standard IV (B.1) - Fiduciary Duties.
  2. II, III and IV only
  3. II and IV only
  4. I only
  5. II and III only

Answer(s): A

Explanation:

Cornelius is clearly in a situation representing a conflict of interests. His arrangement and non-disclosure of the arrangement are unfair to the current clients of Apex and potential clients recommended by Milk 'em. They represent a violation of his fiduciary duties to the clients. By not informing senior management at Apex about the arrangement, he has also violated Standard III (B) - Disclosure of Conflicts to Employer.



According to the Prudent Investor Rule, the trustee must:

- adhere to ________, impartiality and prudence
- maintain overall portfolio risk at a reasonable level
- provide for reasonable diversification of trust investments
- act with prudence in deciding whether and how to delegate authority to experts and in selecting and supervising agents
- be cost conscious when investing

  1. supervisors
  2. loyalty
  3. none of these answers
  4. commitment
  5. diversification

Answer(s): B

Explanation:

Modern Portfolio Theory dictates that trustees consider a portfolio in its entirety and not just on an investment- by-investment basis. As a fiduciary, therefore, the trustee must:
- adhere to fundamental fiduciary duties of loyalty, impartiality and prudence.
- maintain overall portfolio risk at a reasonable level
- the trade-off between risk and return is the fiduciary's central concern.
- provide for reasonable diversification of trust investments.
- act with prudence in deciding whether and how to delegate authority to experts and in selecting and supervising agents.
- be cost conscious when investing.






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