Skip to content

CFA Level I · CFA Level I Exam · Code of Ethics and Standards of Professional Conduct

A portfolio manager at an asset management firm is a long-standing friend of the chief executive of a listed company. The manager is considering buying that company's shares for client portfolios. Which action is most consistent with Standard VI(A) Avoid or Disclose Conflicts?

The manager should avoid the conflict or disclose the friendship to the employer and clients so they can judge his objectivity. Staying silent or disclosing only after a loss does not satisfy Standard VI(A), which calls for avoiding or disclosing conflicts clearly and in time.

  1. ABuy the shares and disclose the friendship only if the investment loses value
  2. BBuy the shares and say nothing, because the friendship does not affect research quality
  3. CDisclose the friendship to the employer and clients, or avoid the conflict by not making the decision aloneCorrect

Explanation

A personal relationship that could reasonably be expected to impair independence and objectivity is a conflict that must be avoided or disclosed. Staying silent leaves clients and the employer unable to judge the manager's objectivity. Disclosing only after a loss is too late and defeats the purpose of disclosure.

Did you get it right without looking?

One question tells you little. A timed set on Code of Ethics and Standards of Professional Conduct shows your real accuracy, how long you take and where you lose marks.

Practise Code of Ethics and Standards of Professional ConductFree diagnostic mock

More Code of Ethics and Standards of Professional Conduct questions