Gostudymock3

5 Key Principles for Answering CFA Ethics Questions



Ethics questions can often be ambiguous, with two answers that seem appropriate. When this happens, knowing which questions to ask can help you sort through the different options. Here are three key questions and two guidelines to help you arrive at the right answer:

  1. If you were the client would you agree with the course of action?
  2. Would a moral person, or leader, follow this course of action?
  3. Does this action uphold the integrity of the investment profession?
  4. When in doubt err towards the more strict guideline/regulation
  5. There are differences between requirements as laid out in the Standards and the recommended practice or guidance. This distinction is often tested.

Ethics boils down to the golden rule.

How would you want your financial advisor to act? What actions should they take with respect to you and your portfolio?

Chances are you’d want them to act in your interests and not those of someone else paying them.[1] You would want them to communicate what they’re doing and explain why, to be honest in reporting results, and to do it frequently enough that you don’t worry about what’s going on.

Finally, an investment professional should also uphold the integrity of capital markets, (which you can think of as the greater good), even at their own expense.[2] There is a simple order of priority that should guide your actions. They are as follows:

  • Preserve the integrity of the capital markets
  • Maintain loyalty to your clients
  • Stay loyal to your employer
  • Look after your own self-interests

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[1] I.e. you’d want to minimize the principal-agent problem

[2] Think Spiderman, with great power (you CFA Charterholder) comes great responsibility.