- CFA Exams
- CFA Level I Exam
- Topic 10. Ethical and Professional Standards
- Learning Module 71. Guidance for Standards I-VII
- Subject 18. Standard VI (A) Disclosure of Conflicts
CFA Practice Question
There are 356 practice questions for this topic.
CFA Practice Question
Rose Brown, CFA, is a highly regarded portfolio manager for Ames Advisors (AA), a mid-sized mutual fund firm investing in domestic securities. She has watched the hedge fund boom and on numerous occasions suggested that her firm create such a fund. Senior management has refused to commit resources to the area. Attracted by potential higher fees associated with hedge funds, Brown and several other employees organize a hedge fund to invest in international securities. Brown is careful to work on the fund development only on her own time. Because AA management thinks hedge funds are a fad, she does not inform her supervisor about the hedge fund creation. According to the Standards of Practice Handbook, Brown should most likely address which of the standards immediately?
A. Additional Compensation Arrangements
B. Priority of Transactions
C. Disclosure of Conflicts
Explanation: According to Standard VI (A) Disclosure of Conflicts, Brown should disclose to her employer the fact she is developing a hedge fund that could possibly interfere with her responsibilities at AA. In setting up a new fund, Brown is not acting for the benefit of her employer. She should have informed AA that she wanted to organize a hedge fund and come to some mutual agreement on how this would occur.
User Contributed Comments 6
|Benn09||The idea of setting up an entirely new hedge fund with only your free time not coming with additional compensation I took as a given. And I basically flipped a coin between the two. Why doesn't the answer address that?|
|nickcoulby||Yeaaaa, given the paragraph, A would be the more appropriate choice here.|
|sevywonder||Feel like everyone that missed this one went with A|
|towengreen||Who's to say the hedge fund would've brought any compensation? She is attracted to the possibility of the high comp, but this just states she is developing one. No compensation has been received yet.|
|Haoran||@towengreen: There is a conflict, irregardless of any compensation. You cannot even do it for free.|
|jaisngh34||There hasn't been any compensation paid and the paragraph is relatively vague on whether the hedge fund is operating or not. the answer is C as there is a clear conflict of interest.|