Application of the Code and Standards: Level II

Correct Answer: Report the misconduct to appropriate supervisors or regulatory authorities, while maintaining confidentiality

The most appropriate course of action for a CFA charterholder who discovers a senior colleague engaging in fraudulent activities is to report the misconduct to appropriate supervisors or regulatory authorities, while maintaining confidentiality. This aligns with the CFA Institute Code of Ethics and Standards of Professional Conduct, which requires members to act with integrity, competence, diligence, respect, and in an ethical manner. Reporting the misconduct upholds the integrity of the profession and protects the public interest. Discussing the issue with the senior colleague and suggesting ways to rectify the fraudulent activities, or documenting the activities and presenting the evidence to the senior colleague, are not appropriate as they do not address the severity of the situation and may lead to further unethical behavior or cover-up attempts. The CFA charterholder's primary responsibility is to maintain the highest standards of ethics and professionalism, which necessitates reporting the misconduct through proper channels.

Correct Answer: Notify the client of the error, refund the overcharged fees with interest, and take steps to prevent similar errors in the future.

According to the CFA Institute Code of Ethics and Standards of Professional Conduct, the most appropriate course of action for Robert is to notify the client of the error, refund the overcharged fees with interest, and take steps to prevent similar errors in the future. As a CFA charterholder, Robert has 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 promptly addressing and correcting any errors or miscalculations that have affected clients. While discussing the issue with his supervisor or investigating and documenting the extent of the error are important steps, the primary focus should be on transparently communicating the error to the affected client and making them whole by refunding the overcharged fees with interest. Robert should also work with his firm to implement controls and procedures to prevent similar errors from occurring in the future.

Correct Answer: CFA charterholders must not misrepresent or exaggerate the meaning or implications of the CFA designation.

The most accurate statement regarding the use of the CFA designation is that CFA charterholders must not misrepresent or exaggerate the meaning or implications of the CFA designation. The CFA Institute does not require charterholders to use the CFA designation when providing investment advisory services to clients. While the CFA Institute encourages the use of the designation in professional communications, it is not a requirement. Misrepresenting or exaggerating the meaning or implications of the CFA designation would violate the CFA Institute's Code of Ethics and Standards of Professional Conduct.