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

Questions 1 through 6 relate to Ethical and Professional Standards GemStar Associates Case Scenario GemStar Associates, a U.S. based firm, provides investment advisory services to domestic and international private wealth and institutional clients. It houses two portfolio management teams, A and B, comprising of three managers each. Team A manages traditional investment vehicles while Team B manages alternative investments. This year, one of the firm’s objectives is to gain full compliance with the Global Investment Performance Standards (GIPS). Susan Marcus, CFA, is a member of Team A who is exploring small-cap high growth equities in the emerging market country of Lipa. To aid her selection process, she is using a statistical model, which uses factor-based models and regression analysis. In her monthly communication with clients she describes the model. Description: To aid the selection of equity securities in Lipa, a statistical model is being used which employs complex methodologies. Details on the model are available on request. Damien Rupert is another portfolio manager and member of Team A. He is following Mono Corporation, a manufacturer of skin care products, the owner of which is a close friend of Rupert’s. During a casual lunch, Monroe’s friend shares his long-term business plans. He intends to launch a line of organic skin care products; the launch will depend on Mono’s success following the IPO. Following their meeting, Rupert purchases Mono stock for a majority of his clients’ portfolios. To avoid any conflict of interest, he does not invest in the stock for his personal portfolio. Rupert devotes some of his time to charities as a volunteer. At some charities, he participates in the policy making progress while at others he serves as a junior volunteer. He has not disclosed these involvements to GemStar. Terry Peters is GemStar’s senior portfolio manager and member of Team B. Due to his successful performance record and significant expertise with alternative investments, he has been invited by Abascus Associates, a newly incorporated investment advisory firm, to offer wealth management guidance to its portfolio managers. His meeting with the firm’s CEO is scheduled at an offsite company lodge. Upon arriving at the lodge, the CEO invites Peters to a famous skiing spot, which he accepts. Although he had notified his employer about the visit to the lodge, he reports the remaining trip details upon his

CFA Level III Mock Exam 3 – Questions (PM)

In order to bring GemStar into compliance with the GIPS standards, senior compliance officer Jerry Walsh plans to undertake verification for its equity composites, which have recently been brought into compliance, from Tray Inc, a firm providing verification services. Walsh intends to take the following actions to further comply with the standards: Action 1: Present each account’s performance net of trading expenses. The amount of trading expenses will be disclosed upon request. Action 2: Include terminated accounts within the relevant composite’s historical performance record for a three year period with details of termination dates clearly disclosed. 1. By providing a description of the model she employs, has Marcus violated any CFA Institute Standards of Professional Conduct? A. No. B. Yes, she has not described the model adequately. C. Yes, she has not used an adequate communication channel. 2. Has Rupert violated any standards by purchasing Mono’s stock for his clients’ portfolios? B. Yes, he has acted on material nonpublic information. C. Yes, he has not determined the suitability of the investment. 3. Has Rupert violated Standard IV (A) Loyalty by failing to disclose his charity involvements to GemStar? A. Yes, with respect to his role as policy maker. B. Yes, with respect to his role as policy maker and junior volunteer. C. No. 4. Has Peters violated any Professional Conduct Standards during his trip? A. Yes, by visiting the offsite company lodge. B. Yes, by visiting the skiing spot. 5. Walsh’s decision to undertake verification is: A. appropriate. B. inappropriate, verification must be firm wide. C. Inappropriate, with respect to the independence of the verifier. 6. Which of the following actions violate the CFA Institute Standards of Professional Conduct? A. Action 1. B. Action 2. C. Both Actions 1 and 2.