Sample Level II Item-Set Questions
Questions 1 through 6 relate to Ethical and Professional Standards.
SMC Case Scenario
Ian Sherman, CFA, is a portfolio manager at SMC, an investment advisory firm which offers
investment products and services to individual and institutional clients. SMC has adopted the
CFA Institute Research Objectivity Standards and implemented policies in compliance with the
Standards.
All of SMC’s investment professionals have earned CFA charters. Sherman tells prospective
clients, “The CFA charter is the highest credential in the global investment management
industry. As charterholders we are committed to the highest ethical standards. Completion of
the program has dramatically improved the team’s portfolio management knowledge and their
ability to achieve better performance results.”
Sherman has earned a reputation for consistently outperforming the market. Over the long run,
his mutual funds have outperformed their respective market benchmarks by a wide margin. For
the past 12 months the funds have slightly underperformed the benchmarks. Some clients have
noticed that Sherman’s fund performance information has not been updated on the advisor’s
website in the past six months. When clients inquire about fund performance, Sherman provides
them with accurate updated information.
Annette Martineau, CFA, works as an analyst for Sherman and presents her recently completed
research report and sell recommendation on Muryan Corporation, which is held in one of
Sherman’s funds to SMC’s Investment Committee. After much debate about the company and
its prospects, the committee reaches a consensus recommendation that is contrary to Martineau’s.
Martineau informs Sherman, “I accept that the committee’s recommendation has a reasonable
basis, but I strongly believe that my recommendation is more appropriate. I have been diligent in
my research and have a deeper understanding of the industry and its competitive factors.”
The following week, Martineau prepares for an investment conference, open to the general
public but typically attended only by investment professionals, by reviewing SMC’s policies
regarding public appearances. The policies state:
1) Employees should remind audience members to judge the suitability of the investment in
light of their own unique circumstances.
2) Employees should make full disclosure of all conflicts of interest, both their own and
those of the firm.
3) Employees may not provide research reports to audience members. Research reports are
reserved exclusively for SMC clients.
