Free CFA Level III: Portfolio Management Ethical & Professional Standards Practice Questions

C is correct. The CFA Institute Code of Ethics applies to all CFA Institute members and all candidates enrolled in the CFA Program. There is no distinction between charterholders and candidates regarding the applicability of the Code.

A is incorrect because the Code applies equally to CFA candidates as well as charterholders. From the moment a person enrolls in the CFA Program, they are subject to the Code of Ethics.

B is incorrect because certain provisions of the Code and Standards (particularly Standard I(D) — Misconduct) can apply to personal conduct if it reflects adversely on the member's professional reputation, integrity, or competence. Dishonest personal behavior can constitute a violation.

A is correct. Soliciting an employer's clients to leave while still employed constitutes a direct violation of Standard IV(A). While employed, members owe a duty of loyalty to their employer, which includes not diverting business away from the firm. Client solicitation while still employed causes direct harm to the employer's business interests.

Choice C is incorrect because providing appropriate notice before departing is a professional and courteous action that gives the employer time to manage the transition. Standard IV(A) does not prohibit leaving an employer — it requires that the transition be handled responsibly and in good faith.

Choice B is incorrect because requesting a raise based on documented strong performance is a normal employment activity. It is advocacy for fair compensation based on measurable contributions, not an act that harms the employer's interests. Standard IV(A) does not require members to sacrifice their own legitimate interests.

B is correct. This arrangement violates multiple standards. Standard III(C) — Loyalty, Prudence, and Care requires Omar to act in the best interests of his existing clients. Allocating their assets to a specific investment because of a personal consulting fee — rather than because the investment is best for the clients — puts his interests ahead of theirs. Standard VI(C) — Disclosure of Conflicts requires disclosure of any compensation arrangement that could reasonably impair objectivity. The 50,000 fee creates a blatant conflict that must be disclosed (and likely should be declined).

A is incorrect because while the arrangement may also reflect poorly on the CFA designation, the primary and most serious violations are the fiduciary duty breach (Standard III(C)) and the undisclosed conflict (Standard VI(C)). Standard VII(C) would be a secondary concern.

C is incorrect because even if Company C is a legitimate investment, the motivation for the allocation is tainted. The decision would be driven by personal financial incentive rather than client benefit, which is a fundamental violation of fiduciary duty regardless of the investment's quality.