Standard IV (B.2) – CFA Level 1: Test Prep Exam | YourWebsiteName

Standard IV (B.2)

Prev Question Next Question

Question

Standard IV (B.2) deals with ________.

Answers

Explanations

Click on the arrows to vote for the correct answer

A. B. C. D. E. F. G. H.

F

Standard IV (B.2) deals with the appropriateness and suitability of investment recommendations for each portfolio or client.

Standard IV (B.2) of the CFA® Level 1 curriculum deals with "fair dealing."

Fair dealing refers to the obligation of investment professionals, such as financial analysts, portfolio managers, and investment advisors, to act in an impartial and ethical manner when dealing with clients and prospective clients. It requires them to prioritize the best interests of their clients and treat them fairly and honestly.

The principle of fair dealing encompasses several important aspects, including:

  1. Loyalty: Investment professionals must act in the best interests of their clients and avoid conflicts of interest that could compromise their objectivity or loyalty to clients. They should prioritize clients' needs and objectives over their own or their employer's interests.

  2. Suitability: Investment professionals must ensure that investment recommendations and strategies are suitable for each client's specific circumstances, including their financial goals, risk tolerance, and investment horizon. They should consider factors such as the client's age, income, investment knowledge, and risk capacity.

  3. Disclosure: Investment professionals must provide clear, accurate, and timely disclosure of all relevant information to clients. This includes disclosing potential conflicts of interest, fees and expenses, investment risks, and any other material information that could impact a client's investment decisions.

  4. Fair competition: Investment professionals should engage in fair competition and avoid unfair or unethical practices that could harm the integrity of the investment industry. They should respect the intellectual property rights of others, avoid making false or misleading statements, and refrain from engaging in fraudulent or manipulative activities.

  5. Professionalism: Investment professionals should uphold high standards of professionalism and ethical conduct. They should strive to enhance their professional competence, maintain the confidentiality of client information, and act in a manner consistent with the reputation and integrity of the investment profession.

The other answer choices provided are not directly related to Standard IV (B.2). Here's a brief explanation of those choices:

A. Compensation: Although compensation is an important consideration in the investment industry, it is not specifically addressed by Standard IV (B.2).

C. Soft dollars: Soft dollars refer to the practice of using commissions from client trades to pay for research and other services. While relevant to the investment industry, it is not the main focus of Standard IV (B.2).

D. Competition: While fair competition is part of the fair dealing principle, it is not the primary focus of Standard IV (B.2).

E. None of these answers: This choice implies that none of the provided answers is correct, which is not the case.

F. Suitability: Suitability is an essential aspect of fair dealing, but it is not the only component covered by Standard IV (B.2).

G. Proxy voting: Proxy voting refers to the process of voting on behalf of shareholders in corporate matters. While important, it is not directly addressed by Standard IV (B.2).

H. Disclosure of conflicts: Disclosure of conflicts is an integral part of fair dealing and is explicitly mentioned in Standard IV (B.2). However, it does not encompass the entire scope of fair dealing.

Prev Question Next Question