1) Introduction Flashcards
What is ethics?
- Ethics can be described as a set of shared beliefs about what is good
or acceptable behaviour and what is bad or unacceptable behavior.
What is ethical conduct? (2)
- Ethical conduct is behaviour that follows moral principles and is
consistent with society’s ethical expectations and conduct that
improves outcomes for stakeholders. - Ethical conduct is behaviour that
balances your self-interest with the impact on others.
For example, some decisions may
bring ___________ results for you, but
negative consequences for a
______________ , such as a client.
positive
stakeholder
Who are stakeholders?
Stakeholders are those directly or indirectly affected by the conduct.
Why do we need ethical standards?
- Trust
- Investors need to have the assurance that they can trust investment practitioners and the markets in which they invest.
True or false, Investment professionals are responsible for using their skills to protect and grow the client’s assets. Investment advice and management are
intangible products, making quality and value received more difficult to
evaluate than for tangible products.
True
What has lead to erosion in public confidence in investment professionals?
BUT … there seems to be an unending number of stories bringing to light accounting frauds and manipulations, Ponzi schemes, insider-trading scandals, and other misdeeds.
A 2013 study by the CFA Institute and Edelman found that only approximately _____ of the surveyed investors said that they trust investment managers to act ethically. “A tarnished reputation is difficult to clean. . . . The investment profession is built on trust as much as it relies on expertise” (Meder, former chair of the CFA Board of Governors).
half
What are the consequences of unethical behaviour in the inverstment profession, for investment professionals? (2)
- Public is less likely to use investment
professionals which reduces job
security for others. - For professional involved, it could result in job loss/ fine/ jail.
What are the consequences of unethical behaviour in the inverstment profession, for client wealth?
May affect client wealth directly through losses and indirectly as investors are
less likely to invest and achieve their financial goals.
What are the consequences of unethical behaviour in the inverstment profession, for the investment industry?
Harms attainment of economic and noneconomic objectives (profitability, share value, legal costs, reputation,
customer satisfaction).
What are the consequences of unethical behaviour in the inverstment profession, for the financial markets, firms and the economy? (3)
- Reduced market participation results in decreased liquidity and market efficiency.
- This decreases access to funding and increases cost of capital for firms and govs requiring capital, which harms profitability and growth of firms and the economy.
- It could result in the misallocation of capital to businesses other than those with the most potential for growth and societal benefit.
What external measures combat unethical investment? (2)
- Regulation
- Regulatory bodies e.g. the Financial Sector Conduct Authority (FSCA)
and the Prudential Authority (PA) in South Africa, Securities Exchange
Commission (SEC) in the US.
What internal measures combat unethical investment? (3)
- Company rules
- Compliance officer
- Code of ethics
The CFA Institute maintains and promotes the Code of ________ and ___________ of Professional Conduct in order to create a culture of ethics for the ultimate benefit of _________.
ethics
stnadards
society
