THROUGH 6 RELATE TO ETHICAL AND PROFESSIONAL STANDARDS. K...

Questions 1 through 6 relate to Ethical and Professional Standards.

Kathy Mooney Case Scenario

Kathy Mooney works for Ace Investment Management (AIM) as a portfolio manager and

investment advisor. Mooney is one of the most senior portfolio managers at the firm and

has worked through AIM’s early development phases. After ten years since

establishment, AIM has now managed to earn a sound standing amongst its competitors,

and has attracted a diverse set of private wealth and institutional clients. Due to Mooney’s

seniority and initial assistance in founding the firm, AIM pays her a competitive base

salary along with lucrative fringe benefits. In addition, Mooney receives additional

monetary compensation when she is successful in the sales process and generation of

assets under management for AIM. Hence, during client meetings, Mooney often

mentions the services her firm offers, how they are unique, what new product offerings

AIM has launched and how they might be an attractive inclusion to their portfolios. The

assets generated through such marketing are invested in proprietary offerings such as

affiliate mutual funds and in-house investment vehicles. Mooney does not disclose this

compensation agreement to clients and prospects.

Mooney earned the right to use the Chartered Financial Analyst designation three years

back and now participates in the CFA Examination Grading Program. Prior to

participation in the program, Mooney signed the Grader Agreement where she agreed not

to reveal or discuss examination materials with anyone except CFA Institute staff and

other graders. One month back, Mooney completed the CFA examination grading for

Level III candidates. Recently, during a conversation with some Level III candidates at

AIM who had appeared for the exam, Mooney mentioned the questions she graded and

how students performed on the questions on average.

Due to her participation in the CFA Institute Grading Program, Mooney has made

contacts with a number of professional figures in the investment community. John Reitz,

a portfolio manager and a CFA charterholder, is one such figure that Mooney has

managed to be friends with. Reitz works for an investment firm with branches nation-

wide, and is also a member of the CFA Institute Investment Performance Council (IPC).

The IPC is responsible for the creation and revision of the CFA Institute performance

presentation standards. Since Reitz has advanced knowledge of any changes or revisions

to be made in the standards, he uses this information to assist his firm in keeping up with

the changes to the standards. This ensures that his firm is in complete compliance with

the changes and is following best practice with regards to performance presentation.

Mooney believes that this is essential to provide fair and accurate information to clients

and prospects.

Mooney has been assigned the task of preparing marketing material for Ace Investment

Management to be distributed to prospective clients. In preparing the material, Mooney

plans to include the following information:

1.   Ace Investment Management includes five employees that are charter holders.

Two employees are expected to complete the Level 2 examination by early 2010.

2.   Ace Investment Management also recruits portfolio managers from around the

globe to bring diversity to their employee base. Two of them are John Doe and

Kelly Dustin, both of whom have CFA-equivalent program degrees.

3.   AIM encourages its employees to enroll in the CFA Program to obtain the highest

set of credentials in the global investment management industry.”

After work, Mooney decided to visit her friends, Randy Singer and Tony Deale. Singer is

a successful portfolio manager and a CFA charter holder. However, after twenty years of

working in the investment industry, Singer finally decided to retire. Since he is no longer

working for any firm, nor is engaged in the investment industry, he does not file a

Professional Conduct Statement with the CFA Institute. When his friends ask him for his

contact number, Singer hands out a plain business card with his new contact details where

he uses ‘CFA’ after his name.

Deale is a young portfolio manager who recently joined an investment management firm

as a financial analyst. Deale has earned both his CFA designation and a PhD in finance

and investment. Deale completed the PhD after earning the CFA charter. When designing

his business card, Deale cited the CFA designation after listing her PhD.

Mooney has just been hired as a consultant by Jenna Levine, a chemical engineer with a

fifteen years experience with Oxy-Chemicals (OXC), a leading firm in the chemicals

industry. After her tenure at OXC, Levine joined an investment firm as a research analyst

covering the chemicals industry. During her time at the firm, Levine invested her own

portfolio in a number of firms in the chemicals industry and made significant money

based on her research. However, most of her portfolio still constitutes her ownership in

OXC, which she earned through an ESOP at the firm. Just recently, Levine was hired by

Hydro-Chemicals (HYC) to devise a strategy that would increase the firm’s operating

efficiency. As part of the strategy, Levine instructed HYC to share resources and profits

with OXC. Her detailed analysis indicated that working with OXC would reduce costs, -

eliminate excessive wastage and increase profits. The board of HYC is, however,

skeptical of the plan’s appropriateness, given Levine’s personal portfolio composition.

1.   With respect to her compensation agreement, is Mooney most likely following

best practice as dictated by the Code of ethics and the Standards of Professional

Conduct?

A.   No.

B.   Yes, because sales efforts attempting to attract new investment

management clients need not disclose this fact.

C.   Yes, because the Standards do not prohibit Mooney from generating new

business for her employer since it is obvious to clients and prospects that

she is referring to the services of AIM.

2.   With respect to her discussion with Level III candidates, has Mooney most likely

violated Standard 7 (A) ‘Conduct as Members and Candidates in the CFA

Program’ of the CFA Institute Standards of Professional Conduct?

A.   Yes.

B.   No, because she discussed the questions with students who had already

appeared for the exam.

C.   No, because she not only discussed the questions with CFA candidates

who had already appeared for the exam and knew the questions, she

disclosed the information well after the exam was over.

3.   Is Reitz most likely in violation with the CFA Institute Standards of Professional

B.   No, because he is assisting his firm in following best practice with respect

to CFA Institute performance presentation standards.

C.   No, because he is using his volunteer position to benefit the investment

community in general.

4.   With respect to the marketing material that Mooney designed, which of the above

points is most likely in violation of the CFA Institute Standards of Professional

A.   Points 2 and 3 only.

B.   Points 1 and 2 only.

C.   Points 1, 2 and 3.

5.   Are Singer and Deale most likely in violation of the CFA Institute Standards of

Professional Conduct?

A.   Only Deale is in violation.

B.   Only Singer is in violation.

C.   Both Singer and Dealer are in violation.

6.   To avoid the conflict of interest arising due to her personal portfolio composition,

Levine should least likely:

A.   sell her investments in chemical-related stocks.

B.   invest in mutual funds specializing in the chemicals industry.

C.   establish a blind trust with an investment policy specifying that her

account hold a certain percentage of firms in the chemicals industry.