Ethical and Professional Standards

Introduction to the Global Investment Performance Standards (GIPS) practice questions

Introduction to the Global Investment Performance Standards (GIPS) is part of CFA Level I Ethical and Professional Standards. Ethics questions test judgment under the Code and Standards, especially duties to clients, employers, markets, and the CFA Program. Use this page to review the controlling ideas, then work through 8 questions with answer explanations and common traps.

Review the worked explanations before moving into adaptive practice. The app version can mix this topic with due reviews and weak related concepts.

Practice this topic

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.

Easy

Ethical and Professional Standards

Introduction to the Global Investment Performance Standards (GIPS)

Meridian Asset Management claims compliance with the GIPS standards and operates in a jurisdiction whose performance-reporting regulations conflict with a GIPS requirement. Meridian most appropriately should:

Moderate

Ethical and Professional Standards

Introduction to the Global Investment Performance Standards (GIPS)

Aurora Investments constructs its composites by grouping client portfolios according to the country in which each client is domiciled, so that local marketing teams can show prospects the returns earned by clients in their own country. Under the GIPS standards, this approach is least appropriate because composites must be defined according to:

Moderate

Ethical and Professional Standards

Introduction to the Global Investment Performance Standards (GIPS)

Drystone Funds, which claims GIPS compliance, wants its claim tested. To save costs, the chief executive proposes that the firm's internal audit department conduct the verification and that the engagement cover only the flagship composite that prospects ask about most often. The proposal is most likely:

Very Difficult

Ethical and Professional Standards

Introduction to the Global Investment Performance Standards (GIPS)

Halcyon Advisors hires the entire emerging-markets team of another investment firm, including all of the team's investment decision-makers. The team continues to run its strategy with a substantially unchanged decision-making process, and complete records supporting the team's historical track record transfer to Halcyon. With respect to the team's performance earned at the prior firm, Halcyon most appropriately may:

Easy

Ethical and Professional Standards

Introduction to the Global Investment Performance Standards (GIPS)

A financial-technology vendor advertises its portfolio-accounting software as 'GIPS-compliant,' and a portfolio manager employed at a firm that claims GIPS compliance describes herself in her conference biography as 'GIPS-certified.' These two claims are most likely:

Moderate

Ethical and Professional Standards

Introduction to the Global Investment Performance Standards (GIPS)

Brindle Asset Management, which claims GIPS compliance, runs 60 discretionary, fee-paying portfolios in a single dividend-growth strategy. To streamline reporting, Brindle includes in the strategy's composite only the 25 portfolios larger than USD 10 million, excluding the 35 smaller portfolios even though they follow an identical mandate. The firm never established a minimum-size criterion for the composite in advance. Under the GIPS standards, Brindle's composite construction is most likely:

Moderate

Ethical and Professional Standards

Introduction to the Global Investment Performance Standards (GIPS)

The chief executive of Quarrystone Advisors, which claims GIPS compliance, engages an independent verifier but instructs it to test only the firm's flagship infrastructure composite. She plans to tell prospective clients that Quarrystone is 'GIPS verified' once the engagement concludes. As described, this engagement is most likely:

Easy

Ethical and Professional Standards

Introduction to the Global Investment Performance Standards (GIPS)

Larkspur Capital's new marketing brochure states: 'Larkspur Capital complies with the Global Investment Performance Standards, except with respect to its real estate portfolios.' Under the fundamentals of compliance of the GIPS standards, this statement is most likely: