Ethics for the CFA Exam in Five Minutes

Use the below post outlining the CFA Institute's standards of practice to get a 5 minute study session covering the all-important Ethics material.

The CFA Institute's Standards of Practice Outlined

There are 6 standards. Together they cover professionalism, integrity of capital markets, duties to clients, duties to employers, investmment analysis, recommendations, actions, and conflicts over interest. 

Standard 1: Professionalism

  • Knowledge of the Law - Know and comply with the law and/or standards 
  • Independence and Objectivity - Remain unbiased, don't accept gifts
  • Misrepresentation - Tell your client the whole truth and nothing but the truth including about your past results
  • Misconduct - Act in an ethical manner, #represent

Standard 2: Integrity of Capital Markets

  • Material Nonpublic Information - Don't trade on it. MOSAIC THEORY
  • Market Manipulation - Don't manipulate price or volume with intent to mislead

Standard 3: Duties to Clients

  • Loyalty, Prudence, and Care - You have a fiduciary duty buddy
  • Fair Dealing - Different levels OK if disclosed and not disadvantageous to any client
  • Suitability - Only recommend investments suitable for a given client
  • Performance Presentation - Should be readable, accurate, complete (think GIPS)
  • Preservation of Confidentiality 

Standard 4: Duties to Employers

  • Loyalty - Written permission for side jobs, act in best interest, whistle blowing OK to protect markets
  • Disclosing additional compensation arrangements - written permission from all parties 
  • Responsibilities of supervisors - Reasonable effort to police your team

Standard 5: Investment Analysis, Recommendations and Actions

  • Diligence and Reasonable Basis
  • Communication with clients and prospective clients - Would you want to know the info if situation reversed? If yes, disclose
  • Record retention - 7 years

Standard 6: Conflicts of Interest

  • Disclosure - Full and timely disclosure
  • Priority of Transactions - Clients > Employers > You
  • Referral fees - Disclose

Summarizing the Code of Ethics -PEJMAR

These standards all support the underlying code of ethics articulated by the CFA Institute:

Priority - Your client's interests always come first, then your employer, then yours

Encourage - Practice and encourage others to act professionally and ethically to reflect credit on yourself and the profession

Judgment - Use reasonable care and judgment when performing all professional activities

Maintain - Keep your knowledge up to date and encourage other professionals to do the same

Actions - Employ integrity, competence, diligence, and respect in an ethical manner with everyone

Rules - Promote the integrity of capital markets by following the rules