Sample Questions
Question 1
Easy
With respect to Stock A, Omar has most likely violated:
Solution
C is correct.
Standard I(B) — Independence and Objectivity requires members to maintain objectivity and not allow personal biases, relationships, or prejudices to influence their professional judgment. By excluding a stock that his own quantitative model ranks as a strong buy — solely because of a personal dispute with the CEO — Omar is letting personal feelings override professional analysis. This compromises the objectivity of his investment decisions and potentially harms clients who miss an attractive opportunity.
Standard I(B) — Independence and Objectivity requires members to maintain objectivity and not allow personal biases, relationships, or prejudices to influence their professional judgment. By excluding a stock that his own quantitative model ranks as a strong buy — solely because of a personal dispute with the CEO — Omar is letting personal feelings override professional analysis. This compromises the objectivity of his investment decisions and potentially harms clients who miss an attractive opportunity.
Question 2
Medium
With respect to Stock B, Omar has most likely:
Solution
B is correct.
Omar added Stock B to client portfolios based on his own independent research showing attractive valuation metrics. His brother holds a non-executive administrative role, which does not imply access to material nonpublic information, and nothing in the case indicates Omar received or acted on any such information. A family relationship alone does not create a violation. Standard VI(A) — Disclosure of Conflicts addresses conflicts that could reasonably impair independence and objectivity; a non-executive administrative relative whose role is unrelated to the investment decision does not rise to that level, and Omar's research-based decision stands. No standard is breached.
Omar added Stock B to client portfolios based on his own independent research showing attractive valuation metrics. His brother holds a non-executive administrative role, which does not imply access to material nonpublic information, and nothing in the case indicates Omar received or acted on any such information. A family relationship alone does not create a violation. Standard VI(A) — Disclosure of Conflicts addresses conflicts that could reasonably impair independence and objectivity; a non-executive administrative relative whose role is unrelated to the investment decision does not rise to that level, and Omar's research-based decision stands. No standard is breached.
Question 3
Hard
Considering Exhibits 1 and 2 together, which of Priya's actions represents the MOST serious violation of the CFA Institute Standards, and why?
Solution
A is correct. The undisclosed familial relationship is independently a Standard VI(A) Disclosure of Conflicts violation, but layered on top of an allocation that gives Meridian more than four times its pro-rata share of a 4.2x oversubscribed IPO, it becomes a compound violation that directly harms the other 13 clients by diverting scarce shares. Ethics failures that are simultaneously undisclosed AND produce unequal client outcomes implicate Standards III(B) Fair Dealing and VI(A) together and are the most serious category because they breach duties to clients, not just internal policy.
