Reading 90: Code of Ethics and Standards of Professional Conduct

Book 4: Ethical and Professional Standards

Who enforces the CFA Code and Standards?

CFA Institute Board of Governors

When an inquiry has begun, what can the Professional Conduct staff do?

request an explanation

interview the subject matter

interview third parties

collect documents and records relevant

True or False: When disciplinary sanction is decided, the Member must accept the decision.

False

they can accept or reject

if it is rejected, the matter is referred to a disciplinary review panel

6 Components of Code of Ethics

• Act with integrity, competence, diligence, respect, and in an ethical manner

• Place the integrity of the investment profession and the interests of clients above their own personal interests

• Use reasonable care and exercise independent professional judgment when conducting investment analysis and other professional activities

• Practice and encourage others to practice in a professional and ethical manner

• Promote integrity and viability of the global capital markets

• Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals

7 Standards of Professional Conduct

Professionalism

Integrity of Capital Markets

Duties to Clients

Duties to Employers

Investment Analysis, Recommendations, and Actions

Conflicts of Interest

Responsibilities as a CFA Institute Member or CFA Candidate

Components of Professionalism

Knowledge of Law

Independence and Objectivity

Misrepresentation

Misconduct

Competence

In the event of compliance conflict with two bodies of rules, which should you follow?

the stricter one

What’s the deal with giving and receiving gifts?

cannot offer, solicit, or accept any gifts, benefits, compensation, or consideration that could compromise independence and objectivity

Components of Integrity of Capital Markets

Material Nonpublic Information

Market Manipulation

Components of Duties to Clients

Loyalty, Prudence, and Care

Fair Dealing

Suitability

Performance Presentation

Preservation of Confidentiality

Whose interests come before all else?

client’s

What are the components of Suitability?

make a reasonable inquiry about a client’s investment experience, risk and return objectives, and financial constraints before acting

determine if an investment is suitable

judge the suitability in the context of the client’s portfolio

When can you break confidentiality?

the information concerns illegal activities on part of the client or prospective client

disclosure is required by law

client permits disclosure

Components of Duties to Employers

Loyalty

Additional Compensation Arrangements

Responsibilities of Supervisors

In what situation can you send or receive gifts?

when there is written consent by all parties

Components of Investment Analysis, Recommendations, and Actions

Diligence and Reasonable Basis

Communication with Clients and Prospective Clients

Record Retention

Do you have to disclose the costs of service?

yes

Distinguish between ____ and ________ in the presentation of analysis and recommendations.

fact, opinion

Components of Conflict of Interest

Avoid Disclosure Conflicts

Priority of Transactions

Referral Fees

Components of Responsibilities as a CFA Institute Member or CFA Candidate

Conduct as Participants in CFA Institute Programs

Reference to CFA Institute, the CFA Designation, and the CFA Program