Test Prep CFA® Level I Chartered Financial Analyst CFA® LEVEL 1 Exam Questions in PDF

Free Test Prep CFA® LEVEL 1 Dumps Questions (page: 82)

Under ERISA, fiduciaries must:

-act solely in the interest of and for the exclusive purpose of benefiting, the plan participants and beneficiaries; -act with the care, skill, prudence and diligence of a prudent person acting in like capacity; -diversify the plan's investments to protect it from the risk of substantial loss; -act in accordance with the provisions of the plan documents to the extent that the documents comply with ________;
-refrain from engaging in prohibited transactions.

  1. AIMR regulations
  2. AIMR code of ethics
  3. None of these answers
  4. ERISA

Answer(s): D

Explanation:

ERISA establishes several guidelines for fiduciary conduct with respect to employee benefit plans. These principles evolved from the common law of trusts, as interpreted by state courts and pre-ERISA requirements for the tax qualification of plans. Fiduciaries must observe these guidelines in all aspects of their dealings with a plan or its assets.



Standard III (C) is ________.

  1. Responsibilities of Supervisors
  2. None of these answers
  3. Duty to Employer
  4. Disclosure of Conflicts to Employer
  5. Disclosure of Additional Compensation Arrangements
  6. Obligation to Inform Employer of Code and Standards

Answer(s): D

Explanation:

Standard III (A) deals with the Obligation to Inform Employer of Code and Standards. Standard III (B) deals with the Duty to Employer. Standard III (C) deals with Disclosure of Conflicts to Employer. Standard III (D) deals with Disclosure of Additional Compensation Arrangements. Standard III (E) deals with Responsibilities of Supervisors.



Jurgens is a portfolio manager with an investment firm based in New York. One of her firm's clients has told Jurgens that he will compensate her beyond that provided by her firm on the basis of the capital appreciation of his portfolio each year. Jurgens should:

  1. Turn down the additional compensations because it will result in conflicts with the interest of other client's accounts.
  2. Turn down the additional compensation because it will create undue pressure on her to achieve strong short-term performance.
  3. Obtain permission from her employer prior to accepting the compensation arrangement.
  4. Receive permission from AIMR for the compensation arrangement.

Answer(s): C

Explanation:

This question pertains to Standard III (D), Disclosure of Additional Compensation Arrangements. If Jurgens were to be compensated, based on the account's performance, beyond that provided by her firm, such a practice is not a violation of the Standards, so long as Jurgens discloses the arrangement inwriting to her employer and obtains permission from the employer before entering the agreement. Members are not required to receive permission from AIMR for such arrangements.



Members can comply with Standard IV (A.1) by undertaking the following:

  1. Analyzing basic investment characteristics
    II. Analyzing portfolio needs of the client
    III. Establishing compliance procedures to prevent violations of Code and Standards IV. Maintaining files to support investment recommendations
  2. I, II & IV
  3. II & IV
  4. I & IV
  5. I & II
  6. II, III & IV
  7. III & IV
  8. I, II, III & IV
  9. II & III

Answer(s): A

Explanation:

Condition III applies to compliance with Standard III (E). For Standard IV (A.1), which deals with the Investment Process, members should investigate the investment's basic characteristics by looking at research reports.
Also, a member has a continuing responsibility to review a client's needs and circumstances to determine whether or not the risk exposure of the total portfolio serves the client's needs. Finally, a member must maintain research files to justify investment decisions later under scrutiny.



Standard V of the Standards of Professional Conduct deals with Relationships with and Responsibilities to ________.

  1. Supervisors
  2. Employers
  3. Employees
  4. the Investing Public
  5. None of these answers

Answer(s): D

Explanation:

Standard V of the Standards of Professional Conduct deals with Relationships with and Responsibilities to the Investing Public.



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