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CFA Ethics Tear Sheet



Summarizing the Code of Ethics

PEJMAR

Priority - Your client's interests always come first (then your employer, then you).

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.

Standards of Professional Conduct

  • Professionalism
    1. Knowledge of the Law: Have to know them, comply with stricter of CFA, local, home law
    2. Independence and Objectivity: Reasonable care, compensation ??s/issuer paid research
    3. Misrepresentation: Knowingly misrepresenting/omitting information, commit plagiarism
    4. Misconduct: Fraud, Negative light on profession. Distinction btwn personal/professional
  • Integrity of Capital Markets
    1. Material nonpublic information: Can’t trade on it or cause others too. MOSIAC theory
    2. Market Manipulation: Artificially distort price or volume with intent to deceive
  • Duties to Clients
    1. Loyalty, prudence, and care: Act for benefit of client above employer/you. Fiduciary duty
    2. Fair Dealing: Fair and objective. Disclose different levels of service (OK w/ no negative)
    3. Suitability: In context of Risk constraints from IPS. Evaluate on portfolio level vs. risk of just 1 security (prudent investor rule)
    4. Performance and Presentation: Fair, accurate, fact vs. opinion. Recommend keep records for 7 years
    5. Preservation of Confidentiality: Always for past/present clients unless illegal, required, or for CFA institute investigation
  • Duties to Employers
    1. Loyalty: Employer before you. Questions around quitting and taking client info/models often get tested
    2. Additional Compensation Arrangements: Disclose first. Written consent from all parties is required.
    3. Responsibilities of Supervisors: Reasonable effort to detect/disclose violations. Has moved to slightly more proactive duty to educate since 2015
  • Investment Analysis, Recommendations, and Actions
    1. Diligence and Reasonable Basis: Cover basis for investment, thorough, disagreeing on a group recommendation is OK
    2. Communications with clients/ prospective clients: Would you want to know something if you were the client? If yes, then disclose it.
    3. Record retention: Electronic OR paper OK. Recommendation: Keep records for 7 years
  • Conflicts of Interest
    1. Disclosure of Conflicts: Disclose anything that would interfere with independence and objectivity
    2. Priority of Transactions: Clients > Employers > You. Treat paying family the same as other clients.
    3. Referral Fees: Full disclosure so clients can judge potential biases. Often in questions related to soft dollar standards
  • Responsibilities as a CFA Institute Member/Candidate
    1. Conduct: Don’t cast negative light on profession or capital markets via your actions

With this framework memorized see our post on the 5 key principles for successfully answering ethics questions on the CFA exam and remember the key to navigating this important section is familiarity with the types of questions they ask and the ways in which the test makers can introduce ambiguity.