Ethical & Professional Standards

CFA® Level II, published weight 10–15%. The same Standards, applied to dense vignettes with competing duties.

What the outline covers

Code of Ethics and Standards of Professional Conduct
Guidance for Standards I–VII
Application of the Code and Standards: Level II

Sample questions

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Question 1

An analyst assembles several individually immaterial non-public details from suppliers and customers and, combined with public filings, concludes the issuer will miss guidance. Acting on that conclusion is:

A. A violation of Standard II(A)
B. Permitted under the mosaic theory
C. Permitted only after disclosure to the issuer
D. A violation of Standard V(A)

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B. The mosaic theory expressly permits combining non-material non-public information with public information. No single piece was material on its own.

Reading: Standard II(A) — Material Nonpublic Information

Question 2

A firm offers premium clients earlier access to research than standard clients, and discloses the tiering to all clients. Under Standard III(B) this is:

A. A violation, because all clients must receive research simultaneously
B. Permitted, because the differential service is disclosed
C. A violation, unless the premium fee is waived
D. Permitted only for institutional clients

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B. Fair dealing does not require identical treatment. Different service levels are permissible provided they are disclosed and do not disadvantage other clients.

Reading: Standard III(B) — Fair Dealing

Question 3

A manager presents a composite that excludes two terminated accounts that underperformed. This most likely violates:

A. Standard III(D) Performance Presentation
B. Standard VI(B) Priority of Transactions
C. Standard IV(A) Loyalty to Employer
D. Standard I(B) Independence and Objectivity

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A. Excluding terminated accounts creates survivorship bias and makes the presentation neither fair nor complete, breaching Standard III(D).

Reading: Standard III(D) — Performance Presentation

Question 4

A member takes a research report prepared at her previous employer and reuses its analysis, with attribution removed, at her new firm. She has violated:

A. Standard IV(A) only
B. Standard I(C) Misrepresentation and Standard IV(A) Loyalty
C. Standard V(B) only
D. No standard, because she wrote the original analysis

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B. The work product belongs to the former employer, and presenting it as new work without attribution is plagiarism under Standard I(C).

Reading: Standard I(C) — Misrepresentation; Standard IV(A) — Loyalty

Question 5

An investment firm allocates a hot IPO pro rata across all suitable client accounts, including accounts in which employees are beneficial owners. Under Standard VI(B), this is:

A. Acceptable if client accounts are filled before employee-owned accounts
B. Acceptable in all circumstances
C. A violation regardless of the allocation order
D. Acceptable only if the employees are not portfolio managers

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A. Priority of transactions requires client interests to come before those of employees. Employee-beneficial accounts may participate only after clients are satisfied.

Reading: Standard VI(B) — Priority of Transactions

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