CFA Level III Ethical and Professional Standards Vocabulary

Comprehensive vocabulary based on the Ethical and Professional Standards for CFA Level III, including Code and Standard definitions, firm responsibilities, and procedural requirements.

Code of Ethics

A set of high-level aspirational principles that define the overarching conduct CFA Institute expects from its members and candidates.

Standards of Professional Conduct

Practical ethical principles of conduct that members and candidates must follow to achieve broader industry expectations, organized into seven main categories.

Standards of Practice Handbook

The fundamental resource for guidance in interpreting and implementing the Code and Standards in concrete professional situations.

Professional Conduct Program (PCP)

The entity responsible, in conjunction with the Disciplinary Review Committee (DRC), for the enforcement of the Code and Standards.

Disciplinary Review Committee (DRC)

A volunteer committee of CFA charterholders that reviews conduct and partners with Professional Conduct staff to establish and review policies.

More Strict Law

The legal requirement or regulation that imposes greater restrictions on the action of the member/candidate or provides a higher degree of protection for investors.

Dissociation

The mandatory act of separating oneself from illegal or unethical activity if an employer or client does not cease such conduct after being informed.

Standard I(B) Independence and Objectivity

The requirement for members and candidates to use reasonable care to maintain independence and not offer or accept gifts that could compromise judgment.

Issuer-Paid Research

Research produced by an analyst but paid for by the subject company, which requires full disclosure of the compensation arrangement to avoid misleading investors.

Standard I(C) Misrepresentation

The prohibition against knowingly making untrue statements or omissions of fact in oral, electronic, or written professional communications.

Plagiarism

Copying or using materials prepared by others without acknowledging the source or identifying the author and publisher.

Standard I(D) Misconduct

The prohibition against engaging in conduct involving dishonesty, fraud, or deceit, or acts reflecting adversely on professional reputation.

Standard I(E) Competence

The 2023 revision requiring members and candidates to act with and maintain the knowledge, skills, and abilities necessary for their roles.

Material Information

Data whose disclosure would likely impact the price of a security or which reasonable investors would want to know before making an investment decision.

Nonpublic Information

Information that has not been disseminated or made known to the marketplace in general.

Mosaic Theory

The practice of reaching a valid investment conclusion through the assembly of public information and nonmaterial nonpublic information.

Market Manipulation

Practices that distort security prices or artificially inflate trading volume with the intent to deceive market participants.

Standard III(A) Loyalty, Prudence, and Care

The duty that requires members and candidates to act for the benefit of their clients and place client interests before their own or their employer's.

Soft Dollars (Soft Commissions)

The practice of using client brokerage to purchase research services; must result in a benefit for the client.

Best Execution

A trading process seeking to maximize the value of the client's portfolio within the client's stated investment objectives and constraints.

Standard III(B) Fair Dealing

The requirement to treat all clients fairly when disseminating investment recommendations or taking investment action.

Investment Policy Statement (IPS)

A written strategic plan addressing a client's risk tolerance, return objectives, and constraints such as liquidity or tax factors.

Standard III(E) Preservation of Confidentiality

The duty to keep current, former, and prospective client information private unless illegal activity is involved, disclosure is required by law, or the client permits it.

Standard IV(A) Loyalty (Employer)

In matters of employment, members must act for the firm's benefit and not deprive the employer of skills, divulge secrets, or cause harm.

Whistleblowing

The act of acting contrary to an employer's interests to protect clients or market integrity, justified if intended to report illegal or unethical activity.

Standard IV(B) Additional Compensation Arrangements

Prohibition against accepting third-party benefits that create a conflict with the employer's interest without obtaining written consent.

Standard V(A) Diligence and Reasonable Basis

The requirement to exercise thoroughness and have an adequate basis supported by research for any investment action or recommendation.

Standard V(C) Record Retention

The duty to maintain records supporting investment analyses and communications; CFA Institute recommends a minimum of seven years.

Standard VI(B) Priority of Transactions

Rule stating that client and employer transactions must take precedence over personal transactions in which the professional is the beneficial owner.

Standard VII(A) Conduct as Participants in CFA Institute Programs

Prohibition against conduct compromising the integrity, validity, or security of the CFA exam or other programs.

CFA Charterholder

An individual who has completed the CFA Program, has required work experience, and maintains active membership through annual dues and conduct statements.

Asset Manager Code of Professional Conduct

A voluntary set of ethical and professional responsibilities designed to apply to firms that manage client assets.