Question

The following information assumes that the CFA Institute Code of Ethics and Standards are applicable

1. Ethics play an important part in the business-world, and this is particularly true for the investment industry. You may often be placed in situations where you must make decisions where you face conflicting interests. Recommend, and explain, a decision-making framework that may guide you towards making an ethical decision.
2. ABC recommends the purchase of a mutual fund that invests solely in long-term US Treasury bonds. She makes the following statements to her clients:
3. “The payment of the bonds is guaranteed by the US government; therefore, the default risk of the bonds is virtually zero.”
4. “If you invest in the mutual fund, you will earn a 10% rate of return each year for the next several years based on historical performance of the market.”

Did ABC's statements violate the CFA Institute Code and Standards? Explain Why/Why Not and which standard(s) are being considered.

Answer 1

Statement 2 has violated the code and standards which is “If you invest in the mutual fund, you will earn a 10% rate of return each year for the next several years based on historical performance of the market.”

Explanation:

Statement 2 guarantees a specific rate of return for a mutual fund which is in violation of code and standards. It violated the standard I (C) - Misrepresntation

Statement 1 is factually correct which is been disclosed to clients and investors.