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.



I am preparing to be a CFA level 1 candidate. Starting today I will be updating some posts based on my preparation for the exam. I will talk about other economic or finance news, ideas and investments but my focus would be on the CFA content.
I am using this blog to share my ideas and learnings from CFA material and to gain knowledge from fellow CFA applicants or from people who have already taken Level 1 exams and are or aren’t charter holders.

Please feel free to comment and share information.

I am just sharing my knowledge and understanding of the material and in no way am I guaranteeing that anyone who reads my posts is well prepared for the exam. Also, any recommendations I make are also not a sure shot way of passing the exam, everyone has different ways and methods of performing tasks. This is just a forum to come together and help each other learn.

Regulatory Reform Plan 2009

With the new Regulatory Reform Plan put in place by Obama administration, it seems like the Federal Reserve, a quasi-public and quasi private entity, will have complete control over the United States banking system. The Federal Reserve has been given all rights to regulate any activities carried out in the US banking system and can take over any company they’d like.

Even though the Obama administration claims to have a special team that will work with and advise the Fed Reserve on how to carry out their operations, the reserve is unaccountable to the US Congress, in fact, they are not accountable to anyone and hence have the right to decline any suggestions made to them.

It is clear that the Obama administration took this action based on the current economic situation and to ensure complete prevention of a similar future event. They are trying to avoid mishaps such as subprime mortgages. But, “Is giving full control to the Fed Reserve really the answer? ”

In my personal opinion, President Obama should have a separate team that performs the regulatory tasks and is accountable to the US Congress on every major action they take, this allows for fairness in the system.

Even if President Obama reads this and “takes my suggestion” (no pun intended 🙂 ), the banks have to now be super careful in every action they take.

Even after TARP, credit is hard to come by

TARP or the Troubled Asset Relief Program that the government put in place to buy out equity and assets from financial institutions to strengthen the financial sector does not seem to be motivating enough for banks to lend more to the consumers.

David Ellis in his article “Big Banks Still Not Lending” touches base on the lending market. He mentions how the lending has gone down 7% since March. Some of the market regulators believe the reason for the decline could be a lower demand by the industrial sector. This makes me believe that banks have more faith in the industrial sector than the consumer market even though it is the taxpayers’ funds that constitute the TARP.

Banks stress on the fact that they are lending more but the consumers believe that it is still very hard to get credit.

In a different article “Economy in ‘early stages of repair’, Colin Barr mentions that Tim Geithner thinks the economy has started to recover and there is a noted improvement in the stock market, but there still maybe tough times to face in the near future. Could this fear of facing tougher times in the near future be the reason why banks are not lending as much? Who knows? I just can’t wait till Wednesday to see what the new ‘regulatory reform plan’ put in place by the Obama administration would do to make the financial sector more stable.

Will come back with more on the Regulatory Reform Plan soon,until then please feel free to leave comments.

Unemployment Rate Going Up Could Be Another Sign of Recovery

Even though the number of jobs cut went down to its lowest in months, the unemployment rate has gone up. Chris Isidore in his article “Job Losses slow dramatically” written this morning talks about how economists believe that unemployment rate going up maybe a factor of an improved job market (potential). The reason economists think that it is a great sign of improvement is because they believe that people who weren’t looking for jobs before are now active searching for jobs. These people have been classified as “unemployed” instead of “not in the labor force”, a classification put in place by the Labor Department.

Although the number of jobs cut last month are only 345,000 instead of 520,000, it is still a very high number. But, something to keep in mind is that some improvement is better than no improvement. It doesn’t seem like there will be drastic improvement in the job market for at least another year or until other factors in the economy take a positive turn such as the GDP, imports and exports, companies that are going through bankruptcy currently do a good job at restructuring or which i think might be a very significant factor – growth of small business because they account for almost 80% of new jobs in the United States.

The aforementioned article goes in detail about the numbers and figures related to the job market and how people have started working part-time just to have some cash flow or have had their hours cut. Some of these numbers are an all time high and the number for jobs being cut in the month of May – 345,000 is also the highest figure for number of jobs cut in one month in the last three recession.

Investment Opportunities – Life Settlements

For my internship at QFA, I am researching on life settlements. Life settlements market is still in development.

What is life settlement? Life settlement is sale or transfer of an insurance policy in lieu of cash. The beneficiary then is the life settlement company – the new owner of the policy. The money paid to the original policy holder is usually higher than the surrender value of the insurance policy.

I have performed an intense research on the topic and will continue to do so as a part of my internship with other learnings but following are some of the basic points about life settlements that I’d like to share here today:

  • Proceeds are Taxable – Should always consult a tax advisor prior to selling the policy
  • Almost any type of life insurance policy is acceptable – Universal, whole, term, Keynes, Survivorship, etc
  • The process can be anywhere between 2 to 6 weeks long
  • Eligibility : Anyone 65 or over, a policy with a face amount of $50,000 or more and an assignable policy or a policy outside of the contestable period.

Don’t viatical firms do the same? The big difference between a viatical firm and a life settlement company is that viatical firms target people with life threatening conditions.

This market is yet to be at a fully developed stage.


Rise In Gold Prices and Talks About Inflation

There have been talks about gold and gold prices recently in the commodities market.  An increase in the price of gold maybe the reason for these talks. Some reasons that possibly led to an increase in the price of gold are:

  • Weak Dollar
  • A Not So Great Financial System

With the dollar weakening and the financial system being in trouble right now, it seems that it is highly unlikely that jewelers have a high demand for gold. The fact that so much money is being pumped into the economy, there is a rise in commodity prices.

Could this lead to inflation? Possibly yes. Even though this may not be what the economists or Ben Bernanke are heavily talking about today, but I’m sure at some level this is their priority in order to prevent high inflation rates.