An analyst is leaving her firm and, absent any specific employment agreement or applicable law addressing the issue, wants to take copies of the research work papers she personally created to support past recommendations. Under Standard V(C), Record Retention, what is the general guidance?

Absent a specific agreement or regulatory requirement stating otherwise, such records are generally considered the property of the firm, and she should leave them behind

A CFA charterholder supervises a team of research analysts. She learns that one analyst — who reports directly to a different manager on a matrixed team — has been sharing draft earnings estimates with a small group of favored clients before the estimates are finalized and distributed firm-wide, a practice that appears to violate the firm's fair-dealing policy. She takes no action, reasoning that supervisory responsibility for that analyst belongs to his direct manager, not to her. Which best describes her compliance with Standard IV(C) Responsibilities of Supervisors?

She has violated the Standard, because a person with knowledge of a violation and the authority or ability to act must make reasonable efforts to detect and prevent it, regardless of whether another manager holds the formal reporting relationship.

A manager relies on a third-party quantitative screen that recently began rating illiquid microcap stocks as low-risk. The vendor refuses to describe how its model handles missing price observations. The manager wants to recommend the top-ranked funds immediately. Which response best satisfies reasonable basis and diligence?

Independently evaluate the model's limitations and data quality before relying on its output, and document the findings.

A new analyst joins a firm and wants to show a track record produced entirely at her former employer. What should she do first?

Confirm that the record is properly attributable and the presentation makes the former firm's role clear

A sell-side research analyst finalizes an upgrade of a stock from 'Hold' to 'Buy' at 9:00 a.m. Which of the following actions would best comply with Standard III(B) Fair Dealing?

Release the recommendation change to all clients on the firm's standard distribution list at the same time, regardless of account size or fee level.

A firm advertises the performance of its three best discretionary portfolios but omits eight comparable accounts that underperformed. Results are otherwise calculated correctly. Which is the central concern?

Selecting only winners creates a misleading picture of the firm's investment record.

A client's Investment Policy Statement specifies moderate risk tolerance and a primary objective of current income. Her advisor allocates 15% of her portfolio to a speculative, pre-revenue biotech stock because it fits the 'growth' sleeve of the firm's standard model portfolio. Is this most likely a violation of the Code and Standards?

Yes, because the recommendation appears inconsistent with the client's stated risk tolerance and income objective and is not evaluated in the context of her total portfolio

An analyst at an investment advisory firm plans to resign in six weeks to launch a competing advisory business. Before formally resigning, she copies her firm's confidential client contact list and a proprietary internal valuation model onto a personal drive, intending to use both once her new firm is operational. She does not contact any clients or use the materials until after her resignation takes effect. Under the CFA Institute Code of Ethics and Standards, her conduct is best characterized as:

A violation of Standard IV(A), Loyalty to Employer, because she misappropriated confidential firm property while still employed, regardless of when she later used it.

CFA Level I Ethical and Professional Standards Practice Questions

Official outline: CFA Institute 2026 Level I Topic Outlines (learning outcomes)
Questions on this page: 8
Updated: Nov 3, 2026
Share of the exam: 15-20%

Question 1, medium
An analyst is leaving her firm and, absent any specific employment agreement or applicable law addressing the issue, wants to take copies of the research work papers she personally created to support past recommendations. Under Standard V(C), Record Retention, what is the general guidance?
- A.She may freely take the records because she personally created the analysis
- B.Absent a specific agreement or regulatory requirement stating otherwise, such records are generally considered the property of the firm, and she should leave them behind
- C.Record retention rules under the Standards apply only to client account statements, not internal research work papers
- D.She must destroy the records upon leaving in order to protect client confidentiality
Show answer and explanationHide answer
Correct answer: B. Absent a specific agreement or regulatory requirement stating otherwise, such records are generally considered the property of the firm, and she should leave them behind
Standard V(C) treats records substantiating investment analyses and recommendations as generally belonging to the firm, not the individual analyst, absent an employment agreement or law providing otherwise.
- A. Personal authorship of the analysis doesn't establish personal ownership. Work created within the scope of employment is generally the firm's property absent an agreement stating otherwise.
- B. Absent a specific employment agreement or law saying otherwise, research work papers created during employment are generally deemed firm property under Standard V(C), so she should leave them behind.
- C. Standard V(C) record retention guidance applies broadly to supporting research and investment records, not solely to client account statements.
- D. The Standard doesn't require destruction of firm records on departure. The guidance is that such records stay with the firm, not that they must be destroyed.
- Source: CFA Institute Standard V(C) (Record Retention), accessed October 2026
Question 2, hard
A CFA charterholder supervises a team of research analysts. She learns that one analyst. Who reports directly to a different manager on a matrixed team. Has been sharing draft earnings estimates with a small group of favored clients before the estimates are finalized and distributed firm-wide, a practice that appears to violate the firm's fair-dealing policy. She takes no action, reasoning that supervisory responsibility for that analyst belongs to his direct manager, not to her. Which best describes her compliance with Standard IV(C) Responsibilities of Supervisors?
- A.She has not violated the Standard, because supervisory responsibility rests solely with the analyst's direct line manager.
- B.She has violated the Standard, because a person with knowledge of a violation and the authority or ability to act must make reasonable efforts to detect and prevent it, regardless of whether another manager holds the formal reporting relationship.
- C.She has not violated the Standard, because Standard IV(C) applies only to individuals with hiring and firing authority over the employee in question.
- D.She has violated the Standard, but only if the analyst's conduct is later shown to have caused demonstrable client harm.
Show answer and explanationHide answer
Correct answer: B. She has violated the Standard, because a person with knowledge of a violation and the authority or ability to act must make reasonable efforts to detect and prevent it, regardless of whether another manager holds the formal reporting relationship.
Standard IV(C) obligates members with supervisory authority to exercise reasonable oversight to prevent violations of laws, regulations, or the Code and Standards by those subject to their supervision or oversight. Awareness of a violation combined with the practical ability to act (even without being the formal line manager) triggers an obligation to escalate, investigate, or otherwise intervene. Inaction premised on 'it's someone else's direct report' does not discharge that duty, and the violation exists independent of whether client harm can later be proven.
- A. Incorrect. Formal reporting lines don't extinguish the duty to act on known violations within one's sphere of oversight.
- B. Correct. Knowledge plus ability to act creates an obligation under Standard IV(C), independent of the org chart.
- C. Incorrect. The Standard is not limited to those with hire/fire authority; it extends to anyone with supervisory or oversight responsibility.
- D. Incorrect. The failure to act on known misconduct is itself the violation; a separate showing of client harm is not a prerequisite.
- Source: CFA Institute Standard IV(C) (Responsibilities of Supervisors), accessed October 2026
Question 3, medium
A manager relies on a third-party quantitative screen that recently began rating illiquid microcap stocks as low-risk. The vendor refuses to describe how its model handles missing price observations. The manager wants to recommend the top-ranked funds immediately. Which response best satisfies reasonable basis and diligence?
- A.Recommend the funds, since using an established vendor shifts responsibility for the screen's accuracy to that vendor.
- B.Recommend the funds and tell clients the screen is proprietary and its methodology is confidential.
- C.Ask clients to sign a waiver of the diligence requirement in their advisory agreements.
- D.Independently evaluate the model's limitations and data quality before relying on its output, and document the findings.
Show answer and explanationHide answer
Correct answer: D. Independently evaluate the model's limitations and data quality before relying on its output, and document the findings.
A recommendation needs a reasonable and adequately supported basis. Using a vendor does not outsource that duty, so the manager must understand the model's assumptions and data quality, especially when stale prices can understate risk.
- A. Professional responsibility for a recommendation stays with the manager even when a vendor supplies the analysis.
- B. Calling the screen proprietary neither supports the recommendation nor discloses the known weakness in how it treats illiquid securities.
- C. Diligence and reasonable-basis duties cannot be waived by clients.
- D. Independently testing the model and its data before relying on it establishes the reasonable basis the standard requires.
- Source: CFA Institute Standard V(A) (Diligence and Reasonable Basis), accessed October 2026
Question 4, medium
A new analyst joins a firm and wants to show a track record produced entirely at her former employer. What should she do first?
- A.Present the record as the current firm's performance because she personally made the decisions at her former firm
- B.Remove losing quarters to avoid confusing prospective clients
- C.Confirm that the record is properly attributable and the presentation makes the former firm's role clear
- D.Show returns without a reference to either firm if calculations are correct
Show answer and explanationHide answer
Correct answer: C. Confirm that the record is properly attributable and the presentation makes the former firm's role clear
Prior performance may be presented with clear attribution and verifiable support, but it must not be represented as the new firm's record.
- A. Personal involvement does not make the record the new firm's; presenting it that way misrepresents performance.
- B. Omitting losing periods makes the record misleading and not fairly representative.
- C. Confirming attribution and clearly identifying the former firm's role keeps the presentation accurate.
- D. Leaving out the source firms obscures where the record came from, even when the math is correct.
- Source: CFA Institute Standard III(D) (Performance Presentation), accessed October 2026
- Source: CFA Institute Standard I(C) (Misrepresentation), accessed October 2026
Question 5, medium
A sell-side research analyst finalizes an upgrade of a stock from 'Hold' to 'Buy' at 9:00 a.m. Which of the following actions would best comply with Standard III(B) Fair Dealing?
- A.Call the firm's largest institutional clients first, then send the report to the standard client email distribution list an hour later.
- B.Release the recommendation change to all clients on the firm's standard distribution list at the same time, regardless of account size or fee level.
- C.Give retail clients access first, since they are less likely to trade quickly, and notify institutional clients afterward but still before the market opens.
- D.Post the report to the firm's public website and note that it is available to any client who calls in to request it that day.
Show answer and explanationHide answer
Correct answer: B. Release the recommendation change to all clients on the firm's standard distribution list at the same time, regardless of account size or fee level.
Standard III(B) requires firms to deal fairly and objectively with all clients when disseminating investment recommendations or material changes to them. It does not require identical service levels for every client, but it does prohibit favoritism based on account size, fee revenue, or relationship. Recommendations must go out to all clients on the same distribution tier simultaneously, following a pre-established, disclosed process. Choice B reflects that even-handed, simultaneous release.
- A. Incorrect. Favoring largest clients with an information head start is preferential treatment based on account size, a Fair Dealing violation.
- B. Correct. Simultaneous, uniform distribution to the standard list treats all similarly situated clients fairly.
- C. Incorrect. This still creates a tiered release, just in a different order; any non-simultaneous tiering not grounded in a disclosed, legitimate service-level structure violates the Standard.
- D. Incorrect. Passive availability upon request does not constitute fair, proactive dissemination and disadvantages clients who don't happen to call in.
- Source: CFA Institute Standard III(B) (Fair Dealing), accessed October 2026
Question 6, easy
A firm advertises the performance of its three best discretionary portfolios but omits eight comparable accounts that underperformed. Results are otherwise calculated correctly. Which is the central concern?
- A.The advertisement should have covered a longer time period, which would offset the selective account choice.
- B.Correct calculations satisfy the duty, so which accounts appear is a marketing decision for the firm.
- C.A prominent past-performance disclaimer and a stated method cure the selective presentation of accounts.
- D.Selecting only winners creates a misleading picture of the firm's investment record.
Show answer and explanationHide answer
Correct answer: D. Selecting only winners creates a misleading picture of the firm's investment record.
Fair, accurate and complete presentation requires avoiding selectively favorable results that distort the record. A disclaimer or correct arithmetic does not substitute for a representative presentation.
- A. Extending the time period does not fix the problem. Even long-period results would still leave out comparable underperforming accounts and give a skewed picture of the firm's record.
- B. Accurate arithmetic is necessary but not sufficient. Presenting only the best accounts and leaving out comparable weaker ones misleads prospective clients even when each figure is correct.
- C. A disclaimer and a description of the method cannot cure the omission of comparable underperforming accounts. Disclosure supplements a fair, complete presentation but does not replace one.
- D. Showing only the best three of eleven comparable accounts distorts the firm's actual record.
- Source: CFA Institute Standard III(D) (Performance Presentation), accessed October 2026
- Source: CFA Institute Standard I(C) (Misrepresentation), accessed October 2026
Question 7, medium
A client's Investment Policy Statement specifies moderate risk tolerance and a primary objective of current income. Her advisor allocates 15% of her portfolio to a speculative, pre-revenue biotech stock because it fits the 'growth' sleeve of the firm's standard model portfolio. Is this most likely a violation of the Code and Standards?
- A.No, because suitability is judged against the model portfolio's sleeve design and the firm's standard asset allocation, not the client's individual IPS
- B.Yes, because the recommendation appears inconsistent with the client's stated risk tolerance and income objective and is not evaluated in the context of her total portfolio
- C.No violation exists provided the position is disclosed to the client before the purchase is executed and the biotech stock is approved for the firm's model portfolio by its investment committee
- D.Yes, but because the position exceeds the 10% single-security concentration limit that the Standards set for client portfolios, rather than because of any IPS mismatch
Show answer and explanationHide answer
Correct answer: B. Yes, because the recommendation appears inconsistent with the client's stated risk tolerance and income objective and is not evaluated in the context of her total portfolio
Standard III(C), Suitability, requires that recommendations be consistent with a client's written IPS and suitable in the context of the client's total portfolio. Fitting a generic model 'sleeve' does not override the client-specific IPS. Simple disclosure doesn't cure an unsuitable recommendation, and there is no fixed percentage bright line in the Standard.
- A. Incorrect. Suitability under the Code and Standards is judged against the individual client's IPS and total portfolio, not against a model portfolio's sleeve design or the firm's standard allocation.
- B. Correct. The allocation appears inconsistent with the client's stated moderate risk tolerance and income objective, and suitability must be assessed in the context of the client's overall portfolio and IPS, not a single sleeve in isolation.
- C. Incorrect. Disclosure and internal committee approval don't cure a suitability violation; the recommendation itself must fit the client's objectives and risk tolerance.
- D. Incorrect. The Standards set no 10% concentration limit; the potential violation stems from the mismatch with the client's IPS and objectives, not from a position-size threshold.
- Source: CFA Institute Standard III(C) (Suitability), accessed October 2026
Question 8, hard
An analyst at an investment advisory firm plans to resign in six weeks to launch a competing advisory business. Before formally resigning, she copies her firm's confidential client contact list and a proprietary internal valuation model onto a personal drive, intending to use both once her new firm is operational. She does not contact any clients or use the materials until after her resignation takes effect. Under the CFA Institute Code of Ethics and Standards, her conduct is best characterized as:
- A.Permissible, because general skills, knowledge, and experience gained during employment belong to the employee upon departure.
- B.A violation of Standard IV(A), Loyalty to Employer, because she misappropriated confidential firm property while still employed, regardless of when she later used it.
- C.Permissible, because she waited until after her resignation was effective before contacting any clients or using the materials.
- D.A violation only if she actually solicits clients using the list; copying confidential files without using them is not itself a breach.
Show answer and explanationHide answer
Correct answer: B. A violation of Standard IV(A), Loyalty to Employer, because she misappropriated confidential firm property while still employed, regardless of when she later used it.
Standard IV(A) permits a departing employee to make general preparations to compete (e.g., securing office space, incorporating a new entity) but prohibits misappropriating the employer's confidential property. Client lists and proprietary models are firm records, not the employee's personal skills or knowledge. The violation occurs at the point of taking/copying the confidential records without authorization, independent of whether or when she later uses them or contacts clients.
- A. Incorrect. This describes general skills and experience, which are portable; a client list and proprietary model are the firm's confidential records, not personal knowledge.
- B. Correct. Misappropriating confidential employer property is a breach of loyalty at the moment it occurs, whether or not the employee later acts on it.
- C. Incorrect. The timing of subsequent use doesn't undo the initial unauthorized taking of confidential firm property while still employed.
- D. Incorrect. The misappropriation itself (copying confidential records without authorization) is the violation; actual solicitation is not required to establish the breach.
- Source: CFA Institute Standard IV(A) (Loyalty), accessed October 2026

Sources

CFA Institute

CFA Institute Standard V(C) (Record Retention), checked October 2026
CFA Institute Standard IV(C) (Responsibilities of Supervisors), checked October 2026
CFA Institute Standard V(A) (Diligence and Reasonable Basis), checked October 2026
CFA Institute Standard III(D) (Performance Presentation), checked October 2026
CFA Institute Standard I(C) (Misrepresentation), checked October 2026
CFA Institute Standard III(B) (Fair Dealing), checked October 2026
CFA Institute Standard III(C) (Suitability), checked October 2026
CFA Institute Standard IV(A) (Loyalty), checked October 2026

Questions are drafted with help from AI and published only after a person reviews and approves them. How these questions are made

CFA Level I Ethical and Professional Standards Practice Questions

Sources

CFA Institute

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