CFA Ethical Standards

First thing you learn when you start out for CFA level 1 exam are the ethical standards laid out by the CFA institute. They provide guidelines on various topics such as integrity, manipulation in the capital market, and additional compensation to name a few.

Members and candidates (including charter holders) must:

  1. Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets.
  2. Place the integrity of the investment profession and the interests of clients above their own personal interests.
  3. Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities.
  4. Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession.
  5. Promote the integrity of, and uphold the rules governing, capital markets.

Standards of Professional Conduct include:

  1. Professionalism: Knowledge of law, independence and objectivity, misrepresentation and misconduct.
  2. Integrity of Capital Markets: Material nonpublic information and market manipulation.
  3. Duties to Clients: Loyalty, Prudence, care and fair dealing, suitability, performance presentation and preservation of confidentiality (unless it is an illegal activity, disclosure required by law or client permits disclosing of information).
  4. Duties to Employers: Loyalty, additional compensation adjustment and responsibilities of supervisors.
  5. Investment Analysis, Recommendations and Actions: Diligence and reasonable basis, Communication with clients and prospective clients and record retention.
  6. Conflicts of Interest: Disclosure of conflicts, Priority of Transactions and referral fees.
  7. Responsibilities as a CFA institute member or CFA candidate: Maintain good conduct, integrity and proper reference to the institute or charter.

Global Investment Performance Standards:

Adopted by the CFA institute, GIPS are standardized rules relating to the reporting of investment performance by money managers worldwide.

GIPS objectives:

  1. To obtain global acceptance of calculation and presentation standards in a fair comparable format with full disclosure.
  2. To ensure consistent, accurate investment performance data in the areas of reporting, records, marketing and presentations.
  3. To promise fair competition among investment management firms in all markets without unnecessary entry barriers for new firms.
  4. To promote global “self regulation”.

Although not required, it is HIGHLY recommended for firms to acquire compliance with GIPS standards in order to show that a firm is indeed adhering to the standards.

The above is a gist of information on Ethics and Standards that are going to be present on the Level 1 exam. It is highly recommended to obtain more information via the CFA website or other study resources. I personally read the Schweser Notes.

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