- CFA Exams
- CFA Exam: Dec. 2020 Level 1
- Study Session 1. Ethical and Professional Standards
- Reading 3. Guidance for Standards I-VII
- Subject 2. Standard I (B) Independence and Objectivity
CFA Practice Question
There are 361 practice questions for this study session.
I. As long as investment decisions of the non-profit organization are independent of your recommendations developed for your firm, there is no violation of the Standards.
II. You must inform your supervisor that you are serving as a trustee with discretionary power over investment decisions.
III. You must inform your supervisor that the non-profit firm has a large position in a firm that you report on.
User Contributed Comments 21You need to log in first to add your comment.
It says that you advise the organization not you have discretion, should the answer be III or should I ass - u - me that I have discretion as a trustee.
I agree with zax4, however it would be incumbent upon you to inform your supervisor that you act in an "advisory" capacity. An advisory role does NOT have discretionary power over investment decisions.
Don't you have to make the assumption that if you are intrusted to advise for this non profit that they will take into consideration your opinion which will guide the non profit's investment portfolio one way or another?
Yes they will take your opinion into accoutn, but this in no way involves discretion. Discretion would mean the trustee has the power to personally initiate investment actions on behalf of the non-profit.
And how is this question even in this section... shouldn't this be included in "conflicts of interest?"
why are there conflicts of interest? why shouldn't he acts as a trustee as long as the analysis is independent and objective?
Note that "trustees" are responsible for the administration and management of the non-profit org. He specifically was made a trustee rather than an advisor. Trustee implies the same thing a director on the board would.
By only stating II you are not linking yourself to the company you follow in your full time job -
By only stating III you make no mention that you have power in the decision making for the Non Profit - hence the need for both.
I think III is NOT CORRECT because you are then passing MATERIAL (public or non-public) information about the non-profit organization to your employer!!!
Passing the info (material, non-public) is ok as long as you don't use the info to trade.
i agree with nike and the answer 11 and 111.
WOW. The little things will get us everytime. If we only have 1.5mins per question, there's no time to mess up. We have to get it right the first time.
I agree with TammTamm that in just less than 90 seconds one may get confused.
interesting question, not sure why it falls in this section. definitely he needs to report to his employer his additional compensation arrangement. It doesn't represent a major conflict of interests (with clients or employer). I feel III is none of the firm's business. you should keep confidentiality for the non profit, disclose to the non profit that you cover the company.
Wouldn't III violate the confidentiality of the non-profit oganisation?
May I ask why not I?
how is III correct? You gonna disclose their position so the bank can bet against them?
For I, the PERCEPTION is still there. Hard to convince outsiders that there's nothing fishy going on.
I only read the first comment.. but this is a realistic ?
How could your decision to have a position in the firm be independent if you track and recommend the firm at your analyst company. Obviously you think it's a good investment! It's impossible to independently want to invest in the company that you're doing thorough analysis on and see as a buy oppotunity!
Does it matter if the non-profit firm had a "large" or a "small" position?
III is right in any case. It is MATERIAL and it can hinder the guy's ability to write independently and objectively at his work place about the company because his interests are aligned with the NPO doing will which is based on the financial performance of the stock.
This is no different from owning shares in a company you're reporting except there the interests are direct and here it's indirect via association of common interests.