Sample Questions
Question 1
Easy
Under Standard III(C) – Suitability, before making investment recommendations to a new client, a member must first:
Solution
B is correct.
Standard III(C) – Suitability requires that before making investment recommendations or taking investment action, members must make a reasonable inquiry into the client's investment experience, risk and return objectives, and financial constraints (including time horizon, liquidity needs, tax considerations, unique circumstances, and legal and regulatory factors). This information forms the basis of the investment policy statement and is essential for determining suitable investments.
Standard III(C) – Suitability requires that before making investment recommendations or taking investment action, members must make a reasonable inquiry into the client's investment experience, risk and return objectives, and financial constraints (including time horizon, liquidity needs, tax considerations, unique circumstances, and legal and regulatory factors). This information forms the basis of the investment policy statement and is essential for determining suitable investments.
Question 2
Medium
Regarding Davidson's role in the situation described, his actions most likely constitute a violation of:
Solution
A is correct.
Davidson, as Chen's supervisor, has a duty under Standard IV(C) – Responsibilities of Supervisors to establish and enforce reasonable procedures to prevent violations by those under his supervision. By approving the report without detecting the plagiarism, Davidson failed to implement adequate review procedures. A supervisor must make reasonable efforts to detect and prevent violations.
Davidson, as Chen's supervisor, has a duty under Standard IV(C) – Responsibilities of Supervisors to establish and enforce reasonable procedures to prevent violations by those under his supervision. By approving the report without detecting the plagiarism, Davidson failed to implement adequate review procedures. A supervisor must make reasonable efforts to detect and prevent violations.
Question 3
Hard
Petrov's response to Sato's six-month-old report about the marketing brochure most likely constitutes a violation of
Solution
A is correct. Petrov has supervisory authority over the firm's portfolio managers and analysts and is responsible for detecting and preventing violations under Standard IV(C); receiving a credible report of a misleading brochure and deferring action for six months without compensating controls breaches that supervisory duty. The brochure also contains untrue statements (unlabeled simulated returns and a false claim of ongoing independent verification) that are still being distributed; by allowing continued distribution after she was on notice, Petrov is participating in misrepresentation under Standard I(C). Both standards are therefore implicated by her continuing inaction.
