Professional Standards

Correct Answer: Report the suspected violation to their supervisor or the appropriate compliance department for further investigation.

The most appropriate action for a CFA charterholder to take when suspecting a colleague of violating the Code and Standards is to report the suspected violation to their supervisor or the appropriate compliance department for further investigation. Discussing the matter with the colleague in question first may allow them to cover up any wrongdoing or influence the CFA charterholder's judgment. Conducting a personal investigation is also inappropriate, as the CFA charterholder may not have the necessary authority or resources to properly investigate the matter. By reporting the suspected violation to the appropriate parties within their organization, the CFA charterholder ensures that the matter will be investigated thoroughly and impartially, in line with the ethical standards set forth by the CFA Institute.

Correct Answer: Report the illegal activities to the appropriate authorities and disassociate from the activity

The most appropriate action for a CFA charterholder to take upon becoming aware of illegal activities at their firm is to report the illegal activities to the appropriate authorities and disassociate from the activity. The CFA Institute Code of Ethics and Standards of Professional Conduct requires members to act with integrity, competence, diligence, respect, and in an ethical manner. Engaging in or supporting illegal activities would violate these principles. Resigning from the firm and seeking employment elsewhere while keeping knowledge of the illegal activities confidential would not uphold the duty to act ethically and protect the integrity of capital markets. Discussing concerns with the supervisor involved and suggesting alternative legal approaches would be insufficient, as the illegal activities must be reported to the proper authorities to comply with legal and ethical obligations.

Correct Answer: Disclose your firm's concerns about the company to the client and explain the rationale behind the downgrade, while respecting the confidentiality of your firm's research.

The best answer is to disclose your firm's concerns about the company to the client and explain the rationale behind the downgrade, while respecting the confidentiality of your firm's research. As a CFA charterholder, you have a duty to act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets. This includes providing clients with objective advice and maintaining their trust. By informing the client about your firm's concerns and the reasons for the downgrade, you are acting in their best interest and providing them with the information they need to make an informed decision about their investment. At the same time, you must respect the confidentiality of your firm's research and not disclose any proprietary information. Proceeding with the presentation as planned and highlighting the company's strengths would be misleading and unethical, as it would not provide the client with a complete and accurate picture of the situation. Advising the client to sell their holdings in the company immediately, regardless of their individual circumstances and investment objectives, would be inappropriate and potentially harmful to the client. As an investment advisor, you have a responsibility to consider the client's unique situation and provide personalized advice that aligns with their goals and risk tolerance.