10.1 ethics and trust in the investment profession Flashcards
Ethics
the set of moral principles and rules of conduct that people and societies use as a guide for their actions
Ethical conduct
behavior that follows moral principles and goes beyond legal standards.
Moral principles
beliefs about what is right and what is wrong
A code of ethics
a formal written set of moral principles that organizations use to communicate their broad expectations for members’ behavior
Explicit rules about specific behaviors are often articulated separately as
standards of conduct.
Professions seek to gain trust and recognition. Those that are most credible share the following 10 characteristics.
- Professions normalize practitioner behavior
- Professions provide a service to society
- Professions are client-focused
- Professions have high entry standards
- Professions possess a body of expert knowledge
- Professions encourage and facilitate continuing education
- Professions monitor professional conduct
- Professions are collegial
- Professions are recognized oversight bodies
- Professions encourage the engagement of members
Situational influences
have a profound impact, either positive or negative, on our decisions and actions
These external factors include what other people are doing around us
Benchmarks for minimally acceptable behaviors of community members are:
A) a code of ethics.
B) laws and regulations.
C) standards of conduct.
C) standards of conduct.
Standards of conduct are applied to specific communities or societal groups and identify specific behaviors required of community members. These standards of conduct serve as benchmarks for the minimally acceptable behavior of community members
Which of the following best identifies an internal trait that may lead to poor ethical decision making?
a) Overconfidence
b) Loyalty to employer
c Promise of money or prestige
a) Overconfidence
An overconfidence bias can lead individuals to put too much importance on internal traits and intrinsic motivations, such as their own perceptions of personal honesty, that can lead to faulty decision making
Situational influences in decision making will most likely be minimized if:
a) strong compliance programs are in place.
b) longer-term consequences are considered.
c) individuals believe they are truthful and honest.
b) longer-term consequences are considered.
Consciously considering long-term consequences will help offset situational influences. We more easily recognize and consider short-term situational influences than longer-term considerations because longer-term considerations have fewer immediate consequences than situational influences do. When decision making is too narrowly focused on short-term factors, we tend to ignore longer-term risks and consequences, and the likelihood of poor ethical decision making increases
Decision makers who use a compliance approach are most likely to:
a) avoid situational influences.
b) oversimplify decision making.
c) consider more factors than when using an ethical decision-making approach.
b) oversimplify decision making.
A compliance approach can oversimplify decision making and may not encourage decision makers to consider the larger picture
To maintain trust, the investment management profession must be interdependent with:
a) regulators.
b) employers.
c) investment firms.
When an ethical dilemma occurs, an investment professional should most likely first raise the issue with a:
a) mentor outside the firm.
b) professional body’s hotline.
c) senior individual in the firm.
c) senior individual in the firm.
When a dilemma occurs, raising an issue internally with a senior employee is often a good starting place and creates an opportunity for an independent internal review. Protecting the client and the firm may take priority over the position of an individual professional raising a concern.
If you are seeking guidance from the firm’s code of ethics or written policies, your actions most likely reflect which phase of an ethical decision-making framework?
Decide
Reflect
Consider
Consider
A research analyst is facing a moral dilemma and decides to use an ethical decision-making framework. After looking at the facts at hand and identifying the situational influences, he still cannot make a decision on the best course of action. His least appropriate next step is to:
determine what additional information is needed.
decide, act, monitor, and reflect.
ask someone else to give guidance.
decide, act, monitor, and reflect.
