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40 multiple-choice questions and 33 flashcards on Ethical and Professional Standards, about 10% of the CFA Level II bank. Every one carries a written rationale.
Ethical and Professional Standards is one of 10 chapters in CoStudy's CFA Level II bank, and it holds 40 of the bank's 401 multiple-choice questions — roughly 10% of the total. That proportion is not arbitrary: chapters follow the certifying body's published exam outline, and the number of questions in each is set by that domain's published weight, so the share of your practice time this chapter takes matches the share of the real exam it accounts for.
Studying by chapter is worth doing once you have a diagnostic score. A single overall percentage tells you whether you are close; it does not tell you which domain is dragging. Working a weak chapter in isolation, and re-testing it in isolation, is the fastest way to move a score that has stalled — and it is why the mock exams in CoStudy report by domain rather than as one number.
6 questions drawn from this chapter, with the full rationale shown — the controlling principle behind the right answer, and why each wrong option tempts and fails.
A manager's GIPS-compliant composite reports a 3-year annualized return of 8.2%. A prospective client asks why the report doesn't include the firm's flagship hedge fund. The firm-wide GIPS claim requires that:
Answer: D — All fee-paying discretionary portfolios firm-wide be
A) Standard III(E) Preservation of Confidentiality — wrong Standard cited. B) Standard I(B) Independence and Objectivity — wrong Standard cited. C) Standard IV(C) Supervisor Responsibilities — wrong Standard cited. D) Correct — this identifies All fee-paying discretionary portfolios firm-wide be.
A research analyst applies the mosaic theory when she:
Answer: D — Combines publicly available financials with her own
A) Standard III(E) Preservation of Confidentiality — wrong Standard cited. B) Standard I(B) Independence and Objectivity — wrong Standard cited. C) Standard IV(C) Supervisor Responsibilities — wrong Standard cited. D) Correct — this identifies Combines publicly available financials with her own.
A charterholder based in Country X (strict securities regulation) manages assets for a client incorporated in Country Y, where disclosure requirements are more lenient than Country X's rules. Under Standard I(A) Knowledge of the Law, the charterholder should follow:
Answer: A — The stricter of the applicable laws, regulations, or the Code and Standards
A) Correct — Standard I(A) requires compliance with whichever of the applicable law, regulation, or the Code and Standards is most strict, determined case by case rather than by a fixed jurisdictional default. B) Client-jurisdiction law can matter, but automatically deferring to it ignores cases where the charterholder's home law or the Code is stricter — a half-right rule missing the controlling comparison. C) Defaulting to home jurisdiction regardless of comparison ignores instances where the client's law or the Code is stricter, reversing the actual test. D) The Code and Standards are one input into the strictness comparison, not an automatic override of local law in every case.
Aurora Capital's marketing deck shows a composite 5-year annualized return of 11.4% net of fees, but excludes two terminated portfolios that lagged the composite by 600 bps. The firm claims GIPS compliance. The presentation MOST likely violates GIPS because:
Answer: D — Composite construction requires inclusion of all
A) Standard III(E) Preservation of Confidentiality — wrong Standard cited. B) Standard I(B) Independence and Objectivity — wrong Standard cited. C) Standard IV(C) Supervisor Responsibilities — wrong Standard cited. D) Correct — this identifies Composite construction requires inclusion of all.
A CFA charterholder writing a research report uses material from a third-party analyst without attribution. This violates Standard:
Answer: A — Standard I(C) Misrepresentation (plagiarism)
A) Correct — this identifies Standard I(C) Misrepresentation (plagiarism). B) Standard I(B) Independence and Objectivity — wrong Standard cited. C) Standard IV(C) Supervisor Responsibilities — wrong Standard cited. D) Standard III(E) Preservation of Confidentiality — wrong Standard cited.
Under Standard V(A) Diligence and Reasonable Basis, an analyst's research is:
Answer: B — Required to have a reasonable and adequate basis
A) Standard III(E) Preservation of Confidentiality — wrong Standard cited. B) Correct — this identifies Required to have a reasonable and adequate basis. C) Standard I(B) Independence and Objectivity — wrong Standard cited. D) Standard IV(C) Supervisor Responsibilities — wrong Standard cited.
4 cards from the 33 in this chapter.
In a vignette: client refuses to update IPS despite major life event. Action under CFA standards?
Per Standard III(C), member should attempt to obtain updated info; document refusal; cannot make recommendations not based on current understanding of client's situation.
What does Standard V(A) Diligence and Reasonable Basis require?
Exercise diligence, independence, thoroughness when analyzing investments. Have reasonable and adequate basis for actions/recommendations.
What does Standard III(D) Performance Presentation require?
Performance information must be fair, accurate, complete. Recommended: comply with GIPS standards.
What does Standard IV(A) Loyalty require?
Act for benefit of employer; don't deprive of advantage of skills/abilities, divulge confidential info, or otherwise cause harm.
These are a sample. The full Ethical and Professional Standards chapter runs 73 items with per-chapter progress tracking, on the web and in the iOS app.
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