Test Prep CFA® Level 2 Exam Practice Questions (P. 3)

Mary Montpicr is an equity analyst with World Renowned Advisors. The firm provides investment advice and financial planning services globally to institutional and retail clients. Shortly after the company opened an office in Malaysia, Montpier's supervisor in the New York office. Rick Reynolds, asked her to relocate, and
Montpier agreed. The goal of the new Malaysian office is to serve as a source of international investment opportunities for U.S. clients. Montpier's main task is to cover small-cap stocks in the region and develop a network of contacts with other investment firms in the region.
Through her interaction with other analysts in Malaysia, Montpier learns that the use of material nonpublic information is common practice in analyst research reports and recommendations. Such practice is not prohibited by law in Malaysia. Montpier is encouraged by this knowledge because she recently observed several investment bankers meeting numerous times at an exclusive local country club with the CEOs of two Malaysian rival companies. It is public information that one of the companies is searching for potential acquisition targets. She has thought several times about issuing a recommendation on one of the companies but has not done so for fear of breaking the law. After learning of the Malaysian insider trading laws, Montpier recommends the stock of the acquisition target, which she had already established as a good investment through prior research.
Montpier has also learned that Malaysian law is very lax regarding outside consulting arrangements by investment professionals. It is common for analysts and portfolio managers to maintain ongoing consulting contracts with entities other than their primary employer. As a result of this, Montpier has begun financial service consultations for members of a local investment club. The club is developing an appropriate compensation package for her services, which to date have included financial planning activities and investment research. When Montpier established the relationship with the investment club, she informed them that she had a full-time job at World Renowned Advisers, which offers similar services.
After a year of consulting with the investment club, Malaysian law changed, requiring investment bankers, securities analysts, and portfolio managers to register with the Malaysian Securities Commission in order to engage in independent consulting practice. Since she is unaware of the change, Montpier does not file the proper registration forms and is later investigated, fined, and temporarily sanctioned by the Malaysian Securities Commission. Montpier is able to have the sanction, but not the fine, removed after appealing the Commission's ruling. Montpier's counterpart in the New York office is Jim Taylor, who has worked as an analyst at World Renowned Advisors for approximately seven years. Taylor researches health care and biotech stocks for the firm and participates in client meetings when managers are recommending stocks that Taylor covers. Taylor recently completed Level 1 of the CFA examination and is waiting for his results so he can register for the Level 2 examination.
In preparation for a client meeting, Taylor's supervisor, Jessica James, asks him to prepare a research report on attractive companies in the health care industry.
Since Taylor is busy preparing for company conference calls, James tells him to "throw something together from the street." To meet James' request, Taylor obtains reports on Immune Healthcare and Remedy Corp., two companies that he has heard about but has not researched. Taylor takes the original reports he obtains from a third-party, adds some general industry information, and submits "strong buy" recommendations to James for the stocks. He does not credit the original authors in the report, which is a violation of copyright law. Taylor includes his qualifications in the report and mentions that he is a "Level 2 Candidate in the CFA Program." Although written procedures require James to review all analyst reports prior to release, time constraints often prevent her from reviewing the reports prior to distribution. James recommends the stocks to her clients, who then purchase them. Several months later, the clients are able to sell the Immune
Healthcare and Remedy Corp. shares at annualized rates of return of 21% and 17%, respectively. James informs Taylor of the clients' successful investments and requests that he begin investigating potential biotech investments for the same group of investors.
To gain insight on biotech stocks, Taylor registers for an upcoming medical study, where he and others will be the subject of testing for the efficacy of several new drugs. On his application, Taylor indicates that he has the appropriate medical condition for the study and signs a confidentiality agreement, but he leaves the question about his occupation blank. During the study, Taylor learns that two of the new drugs on which Next Breakthrough Corp. is awaiting regulatory approval have serious negative side effects in patient testing. This information confirms existing research that Taylor has been working on in the health care sector. At the conclusion of the study, Taylor sends an e-mail to his clients recommending that they "sell" Next Breakthrough Corp. Over the next two weeks. Next Breakthrough releases information that the drugs in question have been held up by a regulatory agency pending additional investigation. The stock plunges over 30% on the news.
In providing financial planning and investment research services to the investment club, has Montpier likely violated any CFA Institute Standards of Professional
Conduct?

Mary Montpicr is an equity analyst with World Renowned Advisors. The firm provides investment advice and financial planning services globally to institutional and retail clients. Shortly after the company opened an office in Malaysia, Montpier's supervisor in the New York office. Rick Reynolds, asked her to relocate, and
Montpier agreed. The goal of the new Malaysian office is to serve as a source of international investment opportunities for U.S. clients. Montpier's main task is to cover small-cap stocks in the region and develop a network of contacts with other investment firms in the region.
Through her interaction with other analysts in Malaysia, Montpier learns that the use of material nonpublic information is common practice in analyst research reports and recommendations. Such practice is not prohibited by law in Malaysia. Montpier is encouraged by this knowledge because she recently observed several investment bankers meeting numerous times at an exclusive local country club with the CEOs of two Malaysian rival companies. It is public information that one of the companies is searching for potential acquisition targets. She has thought several times about issuing a recommendation on one of the companies but has not done so for fear of breaking the law. After learning of the Malaysian insider trading laws, Montpier recommends the stock of the acquisition target, which she had already established as a good investment through prior research.
Montpier has also learned that Malaysian law is very lax regarding outside consulting arrangements by investment professionals. It is common for analysts and portfolio managers to maintain ongoing consulting contracts with entities other than their primary employer. As a result of this, Montpier has begun financial service consultations for members of a local investment club. The club is developing an appropriate compensation package for her services, which to date have included financial planning activities and investment research. When Montpier established the relationship with the investment club, she informed them that she had a full-time job at World Renowned Advisers, which offers similar services.
After a year of consulting with the investment club, Malaysian law changed, requiring investment bankers, securities analysts, and portfolio managers to register with the Malaysian Securities Commission in order to engage in independent consulting practice. Since she is unaware of the change, Montpier does not file the proper registration forms and is later investigated, fined, and temporarily sanctioned by the Malaysian Securities Commission. Montpier is able to have the sanction, but not the fine, removed after appealing the Commission's ruling. Montpier's counterpart in the New York office is Jim Taylor, who has worked as an analyst at World Renowned Advisors for approximately seven years. Taylor researches health care and biotech stocks for the firm and participates in client meetings when managers are recommending stocks that Taylor covers. Taylor recently completed Level 1 of the CFA examination and is waiting for his results so he can register for the Level 2 examination.
In preparation for a client meeting, Taylor's supervisor, Jessica James, asks him to prepare a research report on attractive companies in the health care industry.
Since Taylor is busy preparing for company conference calls, James tells him to "throw something together from the street." To meet James' request, Taylor obtains reports on Immune Healthcare and Remedy Corp., two companies that he has heard about but has not researched. Taylor takes the original reports he obtains from a third-party, adds some general industry information, and submits "strong buy" recommendations to James for the stocks. He does not credit the original authors in the report, which is a violation of copyright law. Taylor includes his qualifications in the report and mentions that he is a "Level 2 Candidate in the CFA Program." Although written procedures require James to review all analyst reports prior to release, time constraints often prevent her from reviewing the reports prior to distribution. James recommends the stocks to her clients, who then purchase them. Several months later, the clients are able to sell the Immune
Healthcare and Remedy Corp. shares at annualized rates of return of 21% and 17%, respectively. James informs Taylor of the clients' successful investments and requests that he begin investigating potential biotech investments for the same group of investors.
To gain insight on biotech stocks, Taylor registers for an upcoming medical study, where he and others will be the subject of testing for the efficacy of several new drugs. On his application, Taylor indicates that he has the appropriate medical condition for the study and signs a confidentiality agreement, but he leaves the question about his occupation blank. During the study, Taylor learns that two of the new drugs on which Next Breakthrough Corp. is awaiting regulatory approval have serious negative side effects in patient testing. This information confirms existing research that Taylor has been working on in the health care sector. At the conclusion of the study, Taylor sends an e-mail to his clients recommending that they "sell" Next Breakthrough Corp. Over the next two weeks. Next Breakthrough releases information that the drugs in question have been held up by a regulatory agency pending additional investigation. The stock plunges over 30% on the news.
In referencing his participation in the CFA program, has Taylor likely violated any CFA Institute Standards of Professional Conduct?

Mary Montpicr is an equity analyst with World Renowned Advisors. The firm provides investment advice and financial planning services globally to institutional and retail clients. Shortly after the company opened an office in Malaysia, Montpier's supervisor in the New York office. Rick Reynolds, asked her to relocate, and
Montpier agreed. The goal of the new Malaysian office is to serve as a source of international investment opportunities for U.S. clients. Montpier's main task is to cover small-cap stocks in the region and develop a network of contacts with other investment firms in the region.
Through her interaction with other analysts in Malaysia, Montpier learns that the use of material nonpublic information is common practice in analyst research reports and recommendations. Such practice is not prohibited by law in Malaysia. Montpier is encouraged by this knowledge because she recently observed several investment bankers meeting numerous times at an exclusive local country club with the CEOs of two Malaysian rival companies. It is public information that one of the companies is searching for potential acquisition targets. She has thought several times about issuing a recommendation on one of the companies but has not done so for fear of breaking the law. After learning of the Malaysian insider trading laws, Montpier recommends the stock of the acquisition target, which she had already established as a good investment through prior research.
Montpier has also learned that Malaysian law is very lax regarding outside consulting arrangements by investment professionals. It is common for analysts and portfolio managers to maintain ongoing consulting contracts with entities other than their primary employer. As a result of this, Montpier has begun financial service consultations for members of a local investment club. The club is developing an appropriate compensation package for her services, which to date have included financial planning activities and investment research. When Montpier established the relationship with the investment club, she informed them that she had a full-time job at World Renowned Advisers, which offers similar services.
After a year of consulting with the investment club, Malaysian law changed, requiring investment bankers, securities analysts, and portfolio managers to register with the Malaysian Securities Commission in order to engage in independent consulting practice. Since she is unaware of the change, Montpier does not file the proper registration forms and is later investigated, fined, and temporarily sanctioned by the Malaysian Securities Commission. Montpier is able to have the sanction, but not the fine, removed after appealing the Commission's ruling. Montpier's counterpart in the New York office is Jim Taylor, who has worked as an analyst at World Renowned Advisors for approximately seven years. Taylor researches health care and biotech stocks for the firm and participates in client meetings when managers are recommending stocks that Taylor covers. Taylor recently completed Level 1 of the CFA examination and is waiting for his results so he can register for the Level 2 examination.
In preparation for a client meeting, Taylor's supervisor, Jessica James, asks him to prepare a research report on attractive companies in the health care industry.
Since Taylor is busy preparing for company conference calls, James tells him to "throw something together from the street." To meet James' request, Taylor obtains reports on Immune Healthcare and Remedy Corp., two companies that he has heard about but has not researched. Taylor takes the original reports he obtains from a third-party, adds some general industry information, and submits "strong buy" recommendations to James for the stocks. He does not credit the original authors in the report, which is a violation of copyright law. Taylor includes his qualifications in the report and mentions that he is a "Level 2 Candidate in the CFA Program." Although written procedures require James to review all analyst reports prior to release, time constraints often prevent her from reviewing the reports prior to distribution. James recommends the stocks to her clients, who then purchase them. Several months later, the clients are able to sell the Immune
Healthcare and Remedy Corp. shares at annualized rates of return of 21% and 17%, respectively. James informs Taylor of the clients' successful investments and requests that he begin investigating potential biotech investments for the same group of investors.
To gain insight on biotech stocks, Taylor registers for an upcoming medical study, where he and others will be the subject of testing for the efficacy of several new drugs. On his application, Taylor indicates that he has the appropriate medical condition for the study and signs a confidentiality agreement, but he leaves the question about his occupation blank. During the study, Taylor learns that two of the new drugs on which Next Breakthrough Corp. is awaiting regulatory approval have serious negative side effects in patient testing. This information confirms existing research that Taylor has been working on in the health care sector. At the conclusion of the study, Taylor sends an e-mail to his clients recommending that they "sell" Next Breakthrough Corp. Over the next two weeks. Next Breakthrough releases information that the drugs in question have been held up by a regulatory agency pending additional investigation. The stock plunges over 30% on the news.
In creating his report on Immune Healthcare and Remedy Corp., Taylor likely violated the CFA Institute Standards of Professional Conduct for all of the following reasons except that he failed to:

Mary Montpicr is an equity analyst with World Renowned Advisors. The firm provides investment advice and financial planning services globally to institutional and retail clients. Shortly after the company opened an office in Malaysia, Montpier's supervisor in the New York office. Rick Reynolds, asked her to relocate, and
Montpier agreed. The goal of the new Malaysian office is to serve as a source of international investment opportunities for U.S. clients. Montpier's main task is to cover small-cap stocks in the region and develop a network of contacts with other investment firms in the region.
Through her interaction with other analysts in Malaysia, Montpier learns that the use of material nonpublic information is common practice in analyst research reports and recommendations. Such practice is not prohibited by law in Malaysia. Montpier is encouraged by this knowledge because she recently observed several investment bankers meeting numerous times at an exclusive local country club with the CEOs of two Malaysian rival companies. It is public information that one of the companies is searching for potential acquisition targets. She has thought several times about issuing a recommendation on one of the companies but has not done so for fear of breaking the law. After learning of the Malaysian insider trading laws, Montpier recommends the stock of the acquisition target, which she had already established as a good investment through prior research.
Montpier has also learned that Malaysian law is very lax regarding outside consulting arrangements by investment professionals. It is common for analysts and portfolio managers to maintain ongoing consulting contracts with entities other than their primary employer. As a result of this, Montpier has begun financial service consultations for members of a local investment club. The club is developing an appropriate compensation package for her services, which to date have included financial planning activities and investment research. When Montpier established the relationship with the investment club, she informed them that she had a full-time job at World Renowned Advisers, which offers similar services.
After a year of consulting with the investment club, Malaysian law changed, requiring investment bankers, securities analysts, and portfolio managers to register with the Malaysian Securities Commission in order to engage in independent consulting practice. Since she is unaware of the change, Montpier does not file the proper registration forms and is later investigated, fined, and temporarily sanctioned by the Malaysian Securities Commission. Montpier is able to have the sanction, but not the fine, removed after appealing the Commission's ruling. Montpier's counterpart in the New York office is Jim Taylor, who has worked as an analyst at World Renowned Advisors for approximately seven years. Taylor researches health care and biotech stocks for the firm and participates in client meetings when managers are recommending stocks that Taylor covers. Taylor recently completed Level 1 of the CFA examination and is waiting for his results so he can register for the Level 2 examination.
In preparation for a client meeting, Taylor's supervisor, Jessica James, asks him to prepare a research report on attractive companies in the health care industry.
Since Taylor is busy preparing for company conference calls, James tells him to "throw something together from the street." To meet James' request, Taylor obtains reports on Immune Healthcare and Remedy Corp., two companies that he has heard about but has not researched. Taylor takes the original reports he obtains from a third-party, adds some general industry information, and submits "strong buy" recommendations to James for the stocks. He does not credit the original authors in the report, which is a violation of copyright law. Taylor includes his qualifications in the report and mentions that he is a "Level 2 Candidate in the CFA Program." Although written procedures require James to review all analyst reports prior to release, time constraints often prevent her from reviewing the reports prior to distribution. James recommends the stocks to her clients, who then purchase them. Several months later, the clients are able to sell the Immune
Healthcare and Remedy Corp. shares at annualized rates of return of 21% and 17%, respectively. James informs Taylor of the clients' successful investments and requests that he begin investigating potential biotech investments for the same group of investors.
To gain insight on biotech stocks, Taylor registers for an upcoming medical study, where he and others will be the subject of testing for the efficacy of several new drugs. On his application, Taylor indicates that he has the appropriate medical condition for the study and signs a confidentiality agreement, but he leaves the question about his occupation blank. During the study, Taylor learns that two of the new drugs on which Next Breakthrough Corp. is awaiting regulatory approval have serious negative side effects in patient testing. This information confirms existing research that Taylor has been working on in the health care sector. At the conclusion of the study, Taylor sends an e-mail to his clients recommending that they "sell" Next Breakthrough Corp. Over the next two weeks. Next Breakthrough releases information that the drugs in question have been held up by a regulatory agency pending additional investigation. The stock plunges over 30% on the news.
By using the information obtained as a result of participating in the drug study, did Taylor likely violate any CFA Institute Standards of Professional Conduct?

Mike Zonding, CFA, is conducting a background check on CFA candidate Annie Cooken, a freshly nudled MBA who applied for a stock-analysis job at his firm,
Khasko Financiar.vZoftding does not like to hire anyone who does not adhere to the Code and Standards' professional conduct requirements.
The background check reveals the following:
(i) While doing a full-time, unpaid internship at Kale Investments, Cooken was reprimanded for working a 30-hour-a-week night job as a waitress.
(ii) As an intern at Lammar Corp., Cooken was fired after revealing to the FBI that one of the principals was embezzling from the firm's clients.
(iii) Cooken performed 40 hours of community service in relation to a conviction on a misdemeanor drug possession charge when she was 16 years old.
(iv) On her resume, Cooken writes, "Recently passed Level 2 of the CFA exam, a test that measures candidates' knowledge of finance and investing."
During the interview, Zonding asks Cooken several questions on ethics-related issues, including questions about the role of a fiduciary and Standard III(E)
Preservation of Confidentiality. He asks her about her internship at Kale Investments, specifically about the working hours. Cooken replies that the internship turned out to require more time than she originally planned, up to 65 hours per week.
Zonding subsequently hires Cooken and functions as her supervisor. On her third day at the money management boutique firm, portfolio manager Steven
Garrison hands her a report on Mocline Tobacco and tells her to revise the report to reflect a buy rating. Cooken is uncomfortable about revising the report.
To supplement the meager income from her entry-level stock-analysis job, Cooken looks for part-time work. She is offered a position working three hours each
Friday and Saturday night tending bar at a sports bar and grill downtown. Cooken does not tell her employer about the job.
During her first week, Cooken has lunch with former MBA classmates, including Taira Basch, CFA, who works for the compliance officer at a large investment bank in town. Basch arrives late, explaining, "What a day, it's only noon and already I have worked on the following requests:
1. A federal regulator called and wanted information on potentially illegal activities related to one of the firm's key clients.
2. A rival company's employee wanted information regarding employment opportunities at the firm.
3. A potential client contacted an employee and wanted detailed performance records of client accounts so he can decide whether to invest with the firm."
Basch goes on to say that she is responsible for developing a presentation on the differences between the Prudent Investor and the Prudent Man rules for managing trust portfolios. Basch explains to Cooken that the Prudent Investor rule requires a trustee to exercise five fiduciary standards in managing the assets of a trust account, including care, skill, caution, loyalty, and impartiality. She states that although there are many differences between the Prudent Man and the newer
Prudent Investor rule, one element of continuity is the duty of the trustee to delegate investment authority in the event that the trustee lacks sufficient investment knowledge.
Toward the end of the lunch meeting, Basch suggests that in exchange for research published by Cooken and Khasko, Basch can have portfolio managers at her firm send clients that are too small for their firm to Khasko. Since Khasko specializes in clients with smaller portfolios, the arrangement sounds like a good idea to
Cooken. Cooken tells Basch that she will think the arrangement over and get back with her next week with a decision.
In the context of the Code and Standards, which of the items from the background check would most likely indicate that Zonding should not have hired Cooken?

Mike Zonding, CFA, is conducting a background check on CFA candidate Annie Cooken, a freshly nudled MBA who applied for a stock-analysis job at his firm,
Khasko Financiar.vZoftding does not like to hire anyone who does not adhere to the Code and Standards' professional conduct requirements.
The background check reveals the following:
(i) While doing a full-time, unpaid internship at Kale Investments, Cooken was reprimanded for working a 30-hour-a-week night job as a waitress.
(ii) As an intern at Lammar Corp., Cooken was fired after revealing to the FBI that one of the principals was embezzling from the firm's clients.
(iii) Cooken performed 40 hours of community service in relation to a conviction on a misdemeanor drug possession charge when she was 16 years old.
(iv) On her resume, Cooken writes, "Recently passed Level 2 of the CFA exam, a test that measures candidates' knowledge of finance and investing."
During the interview, Zonding asks Cooken several questions on ethics-related issues, including questions about the role of a fiduciary and Standard III(E)
Preservation of Confidentiality. He asks her about her internship at Kale Investments, specifically about the working hours. Cooken replies that the internship turned out to require more time than she originally planned, up to 65 hours per week.
Zonding subsequently hires Cooken and functions as her supervisor. On her third day at the money management boutique firm, portfolio manager Steven
Garrison hands her a report on Mocline Tobacco and tells her to revise the report to reflect a buy rating. Cooken is uncomfortable about revising the report.
To supplement the meager income from her entry-level stock-analysis job, Cooken looks for part-time work. She is offered a position working three hours each
Friday and Saturday night tending bar at a sports bar and grill downtown. Cooken does not tell her employer about the job.
During her first week, Cooken has lunch with former MBA classmates, including Taira Basch, CFA, who works for the compliance officer at a large investment bank in town. Basch arrives late, explaining, "What a day, it's only noon and already I have worked on the following requests:
1. A federal regulator called and wanted information on potentially illegal activities related to one of the firm's key clients.
2. A rival company's employee wanted information regarding employment opportunities at the firm.
3. A potential client contacted an employee and wanted detailed performance records of client accounts so he can decide whether to invest with the firm."
Basch goes on to say that she is responsible for developing a presentation on the differences between the Prudent Investor and the Prudent Man rules for managing trust portfolios. Basch explains to Cooken that the Prudent Investor rule requires a trustee to exercise five fiduciary standards in managing the assets of a trust account, including care, skill, caution, loyalty, and impartiality. She states that although there are many differences between the Prudent Man and the newer
Prudent Investor rule, one element of continuity is the duty of the trustee to delegate investment authority in the event that the trustee lacks sufficient investment knowledge.
Toward the end of the lunch meeting, Basch suggests that in exchange for research published by Cooken and Khasko, Basch can have portfolio managers at her firm send clients that are too small for their firm to Khasko. Since Khasko specializes in clients with smaller portfolios, the arrangement sounds like a good idea to
Cooken. Cooken tells Basch that she will think the arrangement over and get back with her next week with a decision.
Which of the following statements provides the least appropriate , justification for Cooken's caution about revising the report on Mocline Tobacco?

Mike Zonding, CFA, is conducting a background check on CFA candidate Annie Cooken, a freshly nudled MBA who applied for a stock-analysis job at his firm,
Khasko Financiar.vZoftding does not like to hire anyone who does not adhere to the Code and Standards' professional conduct requirements.
The background check reveals the following:
(i) While doing a full-time, unpaid internship at Kale Investments, Cooken was reprimanded for working a 30-hour-a-week night job as a waitress.
(ii) As an intern at Lammar Corp., Cooken was fired after revealing to the FBI that one of the principals was embezzling from the firm's clients.
(iii) Cooken performed 40 hours of community service in relation to a conviction on a misdemeanor drug possession charge when she was 16 years old.
(iv) On her resume, Cooken writes, "Recently passed Level 2 of the CFA exam, a test that measures candidates' knowledge of finance and investing."
During the interview, Zonding asks Cooken several questions on ethics-related issues, including questions about the role of a fiduciary and Standard III(E)
Preservation of Confidentiality. He asks her about her internship at Kale Investments, specifically about the working hours. Cooken replies that the internship turned out to require more time than she originally planned, up to 65 hours per week.
Zonding subsequently hires Cooken and functions as her supervisor. On her third day at the money management boutique firm, portfolio manager Steven
Garrison hands her a report on Mocline Tobacco and tells her to revise the report to reflect a buy rating. Cooken is uncomfortable about revising the report.
To supplement the meager income from her entry-level stock-analysis job, Cooken looks for part-time work. She is offered a position working three hours each
Friday and Saturday night tending bar at a sports bar and grill downtown. Cooken does not tell her employer about the job.
During her first week, Cooken has lunch with former MBA classmates, including Taira Basch, CFA, who works for the compliance officer at a large investment bank in town. Basch arrives late, explaining, "What a day, it's only noon and already I have worked on the following requests:
1. A federal regulator called and wanted information on potentially illegal activities related to one of the firm's key clients.
2. A rival company's employee wanted information regarding employment opportunities at the firm.
3. A potential client contacted an employee and wanted detailed performance records of client accounts so he can decide whether to invest with the firm."
Basch goes on to say that she is responsible for developing a presentation on the differences between the Prudent Investor and the Prudent Man rules for managing trust portfolios. Basch explains to Cooken that the Prudent Investor rule requires a trustee to exercise five fiduciary standards in managing the assets of a trust account, including care, skill, caution, loyalty, and impartiality. She states that although there are many differences between the Prudent Man and the newer
Prudent Investor rule, one element of continuity is the duty of the trustee to delegate investment authority in the event that the trustee lacks sufficient investment knowledge.
Toward the end of the lunch meeting, Basch suggests that in exchange for research published by Cooken and Khasko, Basch can have portfolio managers at her firm send clients that are too small for their firm to Khasko. Since Khasko specializes in clients with smaller portfolios, the arrangement sounds like a good idea to
Cooken. Cooken tells Basch that she will think the arrangement over and get back with her next week with a decision.
By not telling Zonding about the bartending position, Cooken has most likely violated:

Mike Zonding, CFA, is conducting a background check on CFA candidate Annie Cooken, a freshly nudled MBA who applied for a stock-analysis job at his firm,
Khasko Financiar.vZoftding does not like to hire anyone who does not adhere to the Code and Standards' professional conduct requirements.
The background check reveals the following:
(i) While doing a full-time, unpaid internship at Kale Investments, Cooken was reprimanded for working a 30-hour-a-week night job as a waitress.
(ii) As an intern at Lammar Corp., Cooken was fired after revealing to the FBI that one of the principals was embezzling from the firm's clients.
(iii) Cooken performed 40 hours of community service in relation to a conviction on a misdemeanor drug possession charge when she was 16 years old.
(iv) On her resume, Cooken writes, "Recently passed Level 2 of the CFA exam, a test that measures candidates' knowledge of finance and investing."
During the interview, Zonding asks Cooken several questions on ethics-related issues, including questions about the role of a fiduciary and Standard III(E)
Preservation of Confidentiality. He asks her about her internship at Kale Investments, specifically about the working hours. Cooken replies that the internship turned out to require more time than she originally planned, up to 65 hours per week.
Zonding subsequently hires Cooken and functions as her supervisor. On her third day at the money management boutique firm, portfolio manager Steven
Garrison hands her a report on Mocline Tobacco and tells her to revise the report to reflect a buy rating. Cooken is uncomfortable about revising the report.
To supplement the meager income from her entry-level stock-analysis job, Cooken looks for part-time work. She is offered a position working three hours each
Friday and Saturday night tending bar at a sports bar and grill downtown. Cooken does not tell her employer about the job.
During her first week, Cooken has lunch with former MBA classmates, including Taira Basch, CFA, who works for the compliance officer at a large investment bank in town. Basch arrives late, explaining, "What a day, it's only noon and already I have worked on the following requests:
1. A federal regulator called and wanted information on potentially illegal activities related to one of the firm's key clients.
2. A rival company's employee wanted information regarding employment opportunities at the firm.
3. A potential client contacted an employee and wanted detailed performance records of client accounts so he can decide whether to invest with the firm."
Basch goes on to say that she is responsible for developing a presentation on the differences between the Prudent Investor and the Prudent Man rules for managing trust portfolios. Basch explains to Cooken that the Prudent Investor rule requires a trustee to exercise five fiduciary standards in managing the assets of a trust account, including care, skill, caution, loyalty, and impartiality. She states that although there are many differences between the Prudent Man and the newer
Prudent Investor rule, one element of continuity is the duty of the trustee to delegate investment authority in the event that the trustee lacks sufficient investment knowledge.
Toward the end of the lunch meeting, Basch suggests that in exchange for research published by Cooken and Khasko, Basch can have portfolio managers at her firm send clients that are too small for their firm to Khasko. Since Khasko specializes in clients with smaller portfolios, the arrangement sounds like a good idea to
Cooken. Cooken tells Basch that she will think the arrangement over and get back with her next week with a decision.
Which of the requests, if fulfilled, is most likely to place Basch in violation of Standard III(E) Preservation of Confidentiality?

Mike Zonding, CFA, is conducting a background check on CFA candidate Annie Cooken, a freshly nudled MBA who applied for a stock-analysis job at his firm,
Khasko Financiar.vZoftding does not like to hire anyone who does not adhere to the Code and Standards' professional conduct requirements.
The background check reveals the following:
(i) While doing a full-time, unpaid internship at Kale Investments, Cooken was reprimanded for working a 30-hour-a-week night job as a waitress.
(ii) As an intern at Lammar Corp., Cooken was fired after revealing to the FBI that one of the principals was embezzling from the firm's clients.
(iii) Cooken performed 40 hours of community service in relation to a conviction on a misdemeanor drug possession charge when she was 16 years old.
(iv) On her resume, Cooken writes, "Recently passed Level 2 of the CFA exam, a test that measures candidates' knowledge of finance and investing."
During the interview, Zonding asks Cooken several questions on ethics-related issues, including questions about the role of a fiduciary and Standard III(E)
Preservation of Confidentiality. He asks her about her internship at Kale Investments, specifically about the working hours. Cooken replies that the internship turned out to require more time than she originally planned, up to 65 hours per week.
Zonding subsequently hires Cooken and functions as her supervisor. On her third day at the money management boutique firm, portfolio manager Steven
Garrison hands her a report on Mocline Tobacco and tells her to revise the report to reflect a buy rating. Cooken is uncomfortable about revising the report.
To supplement the meager income from her entry-level stock-analysis job, Cooken looks for part-time work. She is offered a position working three hours each
Friday and Saturday night tending bar at a sports bar and grill downtown. Cooken does not tell her employer about the job.
During her first week, Cooken has lunch with former MBA classmates, including Taira Basch, CFA, who works for the compliance officer at a large investment bank in town. Basch arrives late, explaining, "What a day, it's only noon and already I have worked on the following requests:
1. A federal regulator called and wanted information on potentially illegal activities related to one of the firm's key clients.
2. A rival company's employee wanted information regarding employment opportunities at the firm.
3. A potential client contacted an employee and wanted detailed performance records of client accounts so he can decide whether to invest with the firm."
Basch goes on to say that she is responsible for developing a presentation on the differences between the Prudent Investor and the Prudent Man rules for managing trust portfolios. Basch explains to Cooken that the Prudent Investor rule requires a trustee to exercise five fiduciary standards in managing the assets of a trust account, including care, skill, caution, loyalty, and impartiality. She states that although there are many differences between the Prudent Man and the newer
Prudent Investor rule, one element of continuity is the duty of the trustee to delegate investment authority in the event that the trustee lacks sufficient investment knowledge.
Toward the end of the lunch meeting, Basch suggests that in exchange for research published by Cooken and Khasko, Basch can have portfolio managers at her firm send clients that are too small for their firm to Khasko. Since Khasko specializes in clients with smaller portfolios, the arrangement sounds like a good idea to
Cooken. Cooken tells Basch that she will think the arrangement over and get back with her next week with a decision.
Is Basch correct or incorrect with regard to her statement about the five required fiduciary standards and her statement about the duty to delegate investment authority?

Mike Zonding, CFA, is conducting a background check on CFA candidate Annie Cooken, a freshly nudled MBA who applied for a stock-analysis job at his firm,
Khasko Financiar.vZoftding does not like to hire anyone who does not adhere to the Code and Standards' professional conduct requirements.
The background check reveals the following:
(i) While doing a full-time, unpaid internship at Kale Investments, Cooken was reprimanded for working a 30-hour-a-week night job as a waitress.
(ii) As an intern at Lammar Corp., Cooken was fired after revealing to the FBI that one of the principals was embezzling from the firm's clients.
(iii) Cooken performed 40 hours of community service in relation to a conviction on a misdemeanor drug possession charge when she was 16 years old.
(iv) On her resume, Cooken writes, "Recently passed Level 2 of the CFA exam, a test that measures candidates' knowledge of finance and investing."
During the interview, Zonding asks Cooken several questions on ethics-related issues, including questions about the role of a fiduciary and Standard III(E)
Preservation of Confidentiality. He asks her about her internship at Kale Investments, specifically about the working hours. Cooken replies that the internship turned out to require more time than she originally planned, up to 65 hours per week.
Zonding subsequently hires Cooken and functions as her supervisor. On her third day at the money management boutique firm, portfolio manager Steven
Garrison hands her a report on Mocline Tobacco and tells her to revise the report to reflect a buy rating. Cooken is uncomfortable about revising the report.
To supplement the meager income from her entry-level stock-analysis job, Cooken looks for part-time work. She is offered a position working three hours each
Friday and Saturday night tending bar at a sports bar and grill downtown. Cooken does not tell her employer about the job.
During her first week, Cooken has lunch with former MBA classmates, including Taira Basch, CFA, who works for the compliance officer at a large investment bank in town. Basch arrives late, explaining, "What a day, it's only noon and already I have worked on the following requests:
1. A federal regulator called and wanted information on potentially illegal activities related to one of the firm's key clients.
2. A rival company's employee wanted information regarding employment opportunities at the firm.
3. A potential client contacted an employee and wanted detailed performance records of client accounts so he can decide whether to invest with the firm."
Basch goes on to say that she is responsible for developing a presentation on the differences between the Prudent Investor and the Prudent Man rules for managing trust portfolios. Basch explains to Cooken that the Prudent Investor rule requires a trustee to exercise five fiduciary standards in managing the assets of a trust account, including care, skill, caution, loyalty, and impartiality. She states that although there are many differences between the Prudent Man and the newer
Prudent Investor rule, one element of continuity is the duty of the trustee to delegate investment authority in the event that the trustee lacks sufficient investment knowledge.
Toward the end of the lunch meeting, Basch suggests that in exchange for research published by Cooken and Khasko, Basch can have portfolio managers at her firm send clients that are too small for their firm to Khasko. Since Khasko specializes in clients with smaller portfolios, the arrangement sounds like a good idea to
Cooken. Cooken tells Basch that she will think the arrangement over and get back with her next week with a decision.
According to CFA Institute Standards of Professional Conduct, which of the following statements is most accurate with regard to the arrangement proposed by
Basch to Cooken?