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CFA L1 Matheus > 2. Ethics > Flashcards

2. Ethics Flashcards

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1
Q

Ethics (definition)

A
  • Shared beliefs on what is good / acceptable
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2
Q

Code of Ethics (definition)

A
  • Written set of moral principals that can guide behavior by describing what is considered acceptable
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3
Q

Suitability v. Fiduciary Responsibility (concept)

A
  • Fiduciary is stronger (to act in client’s best interest)

- Suitability is to offer adequate products (return v. risk)

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4
Q

Deteminant of behavior

A
  • Circumstances / external / situational influences are more important
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5
Q

Ethical v. Legal Standards

A
  • Not all unethical actions are illegal
  • Not all illegal actions are not ethical
  • You should consider the most strict rule
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6
Q

Ethical Decision Making Framework

A
  • Identify (facts, duties, ethical principals, conflicts of interest)
  • Consider (influences, alternative actions)
  • Decide (to act)
  • Reflect
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7
Q

Code of Ethics Components

A

There are 6 (APUPPM)

  1. Act with integrity
  2. Place the integrity above all; client above personal interests
  3. Use reasnable care and exercise independent judgment
  4. Practice and encourage others to act based in ethics and profession
  5. Promote integrity of the capital markets
  6. Maintain and improve professional competence
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8
Q

Standards of Professional Conduct

A

There are 7 (PIDDIRC) = PDD Cruz Vermelha

  1. Professionalism
  2. Integrity of Capital Markets
  3. Duties to Clients
  4. Duties to Employers
  5. Investment Analysis, Recomend and Act
  6. Conflicts of Interest
  7. Responsibilities as a CFA Institute Member
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9
Q

Standard I (Professionalism)

A
  • KIMM Kardashian
  • Knowledge of the Law
  • Independence / Objectivity
  • Misrepresentation (misleading data)
  • Misconduct (dishonesty, fraud)
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10
Q

Standard II (Integrity of Capital Markets)

A

M&Ms

  • MNPI
  • Market Manipulation
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11
Q

Standard III (Duties to Clients)

A

Lefosse PREP

  • Loyalty, Prudence and Care
  • Fair Dealing
  • Suitability
  • Performance Presentation (fair, accurate and complete)
  • Preservation of Confidentiality
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12
Q

Standard IV (Duties to Employers)

A

LAR

  • Loyalty
  • Additional Compensation Arrangements
  • Responsibility of Supervisors
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13
Q

Standard V (Investment Analysis, Recommendations, Actions)

A

Dacar

  • Diligence and Reasonable Basis
  • Communication with Clients
  • Record Retentions
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14
Q

Standard VI (Conflicts of Interest)

A

Dopar

  • Disclosure of conflicts
  • Priority of Transactions
  • Referral fees
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15
Q

Standard VII (Responsibilities as a CFA Candidate/Member)

A
  • Do not engage in any actions that compromises CFA Inst. reputation
  • Reference to the membership should be accurate
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16
Q

Token gift

A

Business dinner is ok; SuperBowl tickets are not

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17
Q

Motivations matter?

A

They don’t. If you are prohibited from some action, they do not matter.

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18
Q

Standard I (Professionalism) - A

A
  • Knowledge of the Law
  • Violations always violate Standard I (A)
  • CFA “strongly encourages” you to report, dissociate or resign from the firm if previous options are not taken
19
Q

Standard I (Professionalism) - B

A
  • Independence & Objectivity

Dont’s:

  • Do not accept gifts that compromise your independence
  • Disclose everything to the employer
  • Do not receive compensation that compromises your behavior
  • Pay your own travel unless it is in the middle of nada
20
Q

Standard I (Professionalism) - C

A
  • Misrepresentation

Dont’s:

  • Plagiarize
  • Omit accounts or relevant info
  • Present the wrong benchmark
  • Guarantee a specific return
21
Q

Standard I (Professionalism) - D

A
  • Misconduct

Dont’s:

  • Fraud
  • Commit anything that compromises reputation, integrity or competence
22
Q

Standard II (Integrity of Capital Markets) - A

A

MNPI: info that affects price OR if a reasonable investor wants it prior to making decisions

23
Q

Mosaic Theory

A

Standard II A

  • Usage of Non-Material Private Info + Perception based in public info does not violate MNPI Standard II - A.
24
Q

Standard II (Integrity of Capital Markets) - B

A

Market Manipulation

  • If there is the intent to mislead, then the standard is violated
25
Q

Standard III (Duties to Clients) - A

A

Loyalty, Prudence and Care

  • Soft dollars (from brokerage) should only be used to benefit the brokerage house’s clients
  • Inform clients of any limitations
  • Does not input fiduciary duty over the client
26
Q

Standard III (Duties to Clients) - B

A

Fair Dealing

  • Client first
  • Fair does not mean equal, if there are different levels of services given proper disclosure
  • Give the chance for all to act
  • Time differences are not a violation, per se
27
Q

Standard III (Duties to Clients) - C

A

Suitability

  • Match risk and return via
    1. Inquiry
    2. Determine that the investment is suitable
    3. Judge by context
28
Q

Unsolicited Trade Request

A

Suitability (Standard III - C)

  1. Speaks to client
  2. Checks effect in portfolio’s risk
  3. Check the firm’s policy and procedures
  4. Update IPS and Execute or
  5. Follows firm’s policies, if client does not accept the update
29
Q

Standard III (Duties to Clients) - D

A

Performance Presentation

  • Use the right benchmark
  • Record Retention
  • Encourage GIPS
  • Terminated accounts should be included in the historical performance
30
Q

Standard III (Duties to Clients) - E

A

Preservation of confidentiality

  • Keep info confidential, unless required by the law or if client is involved in illegal actions
31
Q

Standard IV (Duties to Employers) - A

A
  • LAR
  • Loyalty until leaves the firm effectively
  • It may be broken to preserve clients or the integrity of the market
  • No need to put the firm’s interests ahead of personal interests
32
Q

Standard IV (Duties to Employers) - B

A
  • LAR
  • Additional compensation arrangement
  • Additional compensation that creates a conflict of interest requires written consent from all parties involved
33
Q

Standard IV (Duties to Employers) - C

A
  • LAR
  • Responsibility of Supervisors
  • The boss have an obligation to report inadequate compliance and suggest corrective action
34
Q

Standard V (Investment Analysis) - A

A
  • Diligence and Reasonable Basis (DaCaR)
  1. Exercise diligence and independence
  2. Have reasonable and adequate basis
35
Q

Standard V (Investment Analysis) - B

A
  • Communication with Clients (DaCaR)
  • Disclose general principles of investment process
  • Disclose associated risks
  • Judge which factors are important
  • Distinguish facts and opinions in the presentation
  • Expectations are not facts
36
Q

Standard V (Investment Analysis) - C

A
  • Record Retention (DaCaR)

- Maintain for 7 years

37
Q

Standard VI (Conflicts of Interest) - A

A
  • Disclosure (DoPaR)

- Give fully disclosure to the client

38
Q

Standard VI (Conflicts of Interest) - B

A
  • Priority of Transactions (DoPaR)
  • Clients > Employer > My own account
  • Family members who are clients should be treated in the same way as other clients
39
Q

Standard VI (Conflicts of Interest) - C

A
  • Referal Fees (DoPaR)

- Disclose all referal fees to allow stakeholders to judge the full cost of the service and potential partiality.

40
Q

Standard VII (CFA Member) - A

A
  • Do not engage in any action that compromises the CFA Institute reputation
41
Q

Standard VII (CFA Member) - B

A
  • Refer properly to the CFA charterholder
  • Active members are allowed to mention
  • Pay fees, ok to mention (active members)
  • If you did not pay, do not mention for the period you were not part of the Institute, or give a full disclosure on what happened
42
Q

GIPs compliance level

A

It is given atthe firm-wide level, only

43
Q

GIPS Composite (concept)

A
  • Group of individual discretionary portfolios representing a similar strategy or mandate
  • It must include all fee paying, current and past portfolios for a given “subject”
44
Q

9 sections of GIPS standard

A
  1. Fundamentals of Compliance
  2. Input data
  3. Calculation methodology
  4. Composite Construction
  5. Disclosures
  6. Presentation and Reporting
  7. Real Estate (specific provisions)
  8. Private Equity (specific principles, unless open-ended funds)
  9. Wrap Fee / SMA portfolios (separate accounts)

CFA L1 Matheus (5 decks)

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