Guidance for Standards I–VII practice questions

What to know

Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.

How to practice

Work each item under time pressure, then compare your reasoning with the step-by-step explanation and key takeaway.

Review signal

Missed questions should become scheduled reviews when the error comes from a concept gap, formula setup, or answer-choice trap.

Ethical and Professional Standards

Guidance for Standards I–VII

Yusuf Demir, a portfolio manager, is finalizing his firm's annual list of approved brokers. A broker competing for a place on the list sends him two courtside tickets, worth several thousand dollars, to a sold-out championship game. Under Standard I(B) Independence and Objectivity, Demir should most appropriately:

Ethical and Professional Standards

Guidance for Standards I–VII

Wexford Advisors offers a premium tier in which clients paying higher fees receive more frequent portfolio updates and direct phone access to senior strategists. All clients are informed that the tier exists and may subscribe to it, and premium clients do NOT receive recommendations or trade executions before other clients. Under Standard III(B) Fair Dealing, this arrangement is most likely:

Ethical and Professional Standards

Guidance for Standards I–VII

A marketing associate drafts a firm brochure stating, "Our office employs three CFAs, including senior adviser Renate Vogel, who has held her charter since 2015." Vogel is an active charterholder in good standing. The brochure's wording is most likely:

Ethical and Professional Standards

Guidance for Standards I–VII

Tendai Moyo manages a small-cap growth mutual fund with a clearly stated mandate. A retail shareholder writes to Moyo complaining that the fund is too volatile for her retirement needs and asks him to add a substantial bond allocation. Under Standard III(C) Suitability, Moyo most appropriately should:

Ethical and Professional Standards

Guidance for Standards I–VII

Combining store-visit counts, public credit card panel data, and management's public guidance, analyst Joelle Marchand builds a model showing that retailer Cartwright Stores will beat consensus earnings by a wide margin. Before publishing, she calls the company's investor relations officer, who says, "I can't comment on numbers, but your model is right on target." Marchand most appropriately should:

Ethical and Professional Standards

Guidance for Standards I–VII

While employed as an analyst at Brockfield Capital, Sanjay Iyer plans to launch his own advisory firm. On evenings and weekends, using only personal funds and equipment, he registers a company, signs an office lease, and arranges technology services. He contacts no Brockfield clients and takes no firm materials or records. Under Standard IV(A) Loyalty, Iyer's actions are most likely:

Ethical and Professional Standards

Guidance for Standards I–VII

Analyst Freya Lindqvist serves on a five-member research committee that votes to issue a buy rating on an airline. Lindqvist's own analysis supports a hold rating, but she concludes that the committee's view rests on thorough analysis and has a reasonable and adequate basis. Under Standard V(A) Diligence and Reasonable Basis, Lindqvist most appropriately:

Ethical and Professional Standards

Guidance for Standards I–VII

Pavel Novak, an adviser at a bank-owned brokerage, earns a 40% higher payout when clients purchase the bank's proprietary funds than when they purchase comparable third-party funds. The proprietary funds are suitable for many of his clients. Under Standard VI(A) Avoid or Disclose Conflicts, Novak most appropriately should:

Ethical and Professional Standards

Guidance for Standards I–VII

A pension client directs Amara Osei, its portfolio manager, to route all of the account's trades to Ridgeline Brokers because Ridgeline rebates a portion of commissions directly to the pension plan. Osei estimates that Ridgeline's execution quality is somewhat below that of her usual brokers. Under Standard III(A) Loyalty, Prudence, and Care, Osei most appropriately should:

Ethical and Professional Standards

Guidance for Standards I–VII

In a published report, analyst Bianca Romano writes, "Orion Foods will raise its dividend by 10% next quarter." The figure comes solely from her own forecasting model, and the company has made no announcement about its dividend. The report nowhere indicates that the statement is a projection. Romano most likely violated the Standard V(B) requirement to:

Ethical and Professional Standards

Guidance for Standards I–VII

During a routine call, a corporate treasurer inadvertently tells portfolio manager Henrik Olsen that the issuer will announce a large, unexpected loss next week. The next morning, before any announcement, a discretionary client emails Olsen instructing him to sell the account's entire position in that issuer to fund a property purchase. Olsen most appropriately should:

Ethical and Professional Standards

Guidance for Standards I–VII

Adviser Lucía Herrera discovers that her employer systematically overstates the value of illiquid client holdings, inflating the fees clients pay. She escalates the issue to her supervisor and then to compliance, and both tell her to drop the matter. Local law neither requires nor protects whistleblowing. Herrera considers providing supporting documentation to the securities regulator. Under the Standards, her contemplated disclosure is:

Ethical and Professional Standards

Guidance for Standards I–VII

Portfolio manager Dario Conti allocates a heavily oversubscribed IPO pro rata among all suitable client accounts. His parents hold a regular fee-paying discretionary account at the firm for which the IPO is suitable, but Conti excludes their account from the allocation entirely to avoid any appearance of favoritism. Conti's exclusion of the account is most likely:

Ethical and Professional Standards

Guidance for Standards I–VII

The marketing team at Calder Wealth drafts a website biography for adviser Noor Haddad that reads, "Noor earned the CFA charter, a credential that certifies her ability to deliver superior risk-adjusted returns." Haddad, a charterholder in good standing, is asked to approve the page before it is published. Haddad's most appropriate response is to:

Ethical and Professional Standards

Guidance for Standards I–VII

Sell-side analyst Greta Albrecht covers Vantor Industries while her firm's banking division negotiates a large underwriting mandate with the company. Her updated model now supports a downgrade to sell, and bankers warn that publishing it will end the mandate. Her research director proposes that the firm stop issuing recommendations on Vantor, place the company on a restricted list, and distribute only factual information about it. The proposal is best described as:

Ethical and Professional Standards

Guidance for Standards I–VII

Leandro Costa, CFA, is an investment adviser based in Country P, which has no rules governing disclosure of referral fees. He also serves clients residing in Country Q, whose securities law requires written disclosure of every referral arrangement before an engagement begins and is stricter on this point than the CFA Institute Standards. Country Q law applies to advisers serving its residents. Regarding his Country Q clients, Costa's referral-fee disclosures must most likely conform to:

Ethical and Professional Standards

Guidance for Standards I–VII

Portfolio manager Kirsten Vollan receives two offers in the same week. A longstanding pension client, pleased with last year's results, sends her a case of mid-priced wine as a thank-you gift. Separately, a broker competing for the firm's order flow offers her an all-expenses-paid weekend at a coastal resort. Her firm requires that all gifts be disclosed but does NOT prohibit them. Which response by Vollan is most consistent with Standard I(B) Independence and Objectivity?

Ethical and Professional Standards

Guidance for Standards I–VII

Wealth adviser Tomás Rebelo drafts three sentences for client communications. Statement 1: 'This Treasury bill, if held to maturity, will pay its stated face value, an obligation backed by the full faith and credit of the national government.' Statement 2: 'Based on our track record, this equity strategy will return at least 9% next year.' Statement 3: 'Clients in our balanced program have never experienced a losing month, and that will continue.' Which statement is least likely to violate Standard I(C) Misrepresentation?

Ethical and Professional Standards

Guidance for Standards I–VII

Analyst Mei-Ling Chou is finalizing an industry report. She includes quarterly output figures taken from a recognized government statistical agency without naming the agency, and she also reproduces, nearly word for word and without attribution, a rival analyst's distinctive argument for why industry margins will compress. With respect to Standard I(C) Misrepresentation, Chou most likely:

Ethical and Professional Standards

Guidance for Standards I–VII

Analyst Rohan Bhatt combines an issuer's public filings, industry shipment data purchased from a commercial vendor, and several nonmaterial operational details gathered in interviews with the issuer's distributors. His model concludes that the issuer will beat consensus earnings, and his firm prepares to buy the stock. A junior colleague objects that Bhatt's conclusion is itself now material and nonpublic, so trading must wait until the conclusion is publicly released. Under Standard II(A) Material Nonpublic Information, the firm most likely:

Ethical and Professional Standards

Guidance for Standards I–VII

Danielle Okafor oversees proxy voting for the equity portfolios of Ferndale Advisors' clients. The firm adopts a written policy under which it analyzes and votes all proxies involving mergers, contested board elections, and executive compensation plans, but, following a documented cost-benefit analysis, it does NOT vote routine, uncontested ballot items for very small positions. The policy is disclosed to clients. Under Standard III(A) Loyalty, Prudence, and Care, Ferndale's approach is most likely:

Ethical and Professional Standards

Guidance for Standards I–VII

Calloway Investments receives shares in a heavily oversubscribed IPO that is suitable for many client accounts. The firm's written allocation policy, disclosed to clients, calls for pro rata allocation among all suitable accounts that submitted indications of interest. Portfolio manager Iris Nakamura notices that two of those accounts recently lost money on an unrelated recommendation, so she awards them double their pro rata share of the IPO to restore goodwill, reducing the allocations of the other suitable accounts. Under Standard III(B) Fair Dealing, Nakamura most likely:

Ethical and Professional Standards

Guidance for Standards I–VII

Adviser Bram Vandenberg holds discretionary authority over a client's portfolio under an investment policy statement written three years ago, when the client planned to work another decade. The client calls to say she has retired early and will begin drawing living expenses from the account within months. Under Standard III(C) Suitability, Vandenberg's most appropriate first step is to:

Ethical and Professional Standards

Guidance for Standards I–VII

While still employed as a senior analyst at Merrow Capital, Farid Qasemi prepares to found his own advisory firm. On weekends and using personal funds, he incorporates the new company, signs an office lease, and passes a regulatory licensing examination. He also emails three Merrow clients from his personal account, describing the coming firm and inviting them to move their assets to it when it opens. Under Standard IV(A) Loyalty, which of Qasemi's actions most likely violates the Standard?

Ethical and Professional Standards

Guidance for Standards I–VII

A five-member research committee at Halden Securities votes to upgrade a shipping company to buy. Before publication, committee member Signe Aas discovers that the upgrade rests on freight-rate data the vendor has formally retracted because of calculation errors. She informs the committee, but it declines to rerun the analysis and schedules the report for release under all five members' names. Under Standard V(A) Diligence and Reasonable Basis, Aas most appropriately should:

Ethical and Professional Standards

Guidance for Standards I–VII

Equity analyst Petra Simic accepts an unpaid seat on the board of directors of Lumatek, a public company she actively covers with a buy rating. Confident in her own objectivity, she plans to record the directorship only in her firm's internal conflicts register and to make no mention of it in her published research. Under Standard VI(A) Disclosure of Conflicts, Simic's plan is most likely:

Ethical and Professional Standards

Guidance for Standards I–VII

Two weeks into a CFA exam window, Level II candidate Jonas Keller has NOT yet sat for his exam. A friend who tested earlier in the same window sends him an unsolicited message listing several actual questions she remembers from her session. Under Standard VII(A) Conduct as Participants in CFA Institute Programs, Keller most appropriately should:

Ethical and Professional Standards

Guidance for Standards I–VII

Amaia Etxeberria passed the Level III CFA exam last year but has NOT yet accumulated the professional work experience required to receive the charter. She is updating the credentials line of her professional networking profile. Under Standard VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program, which wording is most appropriate?

Ethical and Professional Standards

Guidance for Standards I–VII

Riding a hotel elevator during an industry conference, portfolio manager Elias Brandt overhears two executives of Nordvik Energi, a publicly traded company, discussing a NOT-yet-announced agreement to sell the company's largest division at a substantial premium. Brandt currently holds no position in Nordvik for himself or his clients. Under Standard II(A) Material Nonpublic Information, Brandt most appropriately should: