Ethical and Professional Standards Flashcards
Ethics
Can be defined as a set of principles or rules of conduct that provide guidance for our behavior when it affects others.
Fundamental Ethical Principles Inc;lude
- Honesty
- Fairness
- Diligence
- Care and Respect for Others
Competence
Members and Candidates must act with and maintain the competence necessary to fulfill their professional responsibilities
Communication with Clients and Prospective Clients
Members and Candidates Must:
Disclose to clients and prospective clients the nature of the services provided, along with information about the costs to the client associated with those services.
Conflicts of Interest
Avoid or Disclose Conflicts
Members and Candidates must avoid or make full and fair
disclosure of all matters that could reasonably be expected
to impair their independence and objectivity or interfere with
respective duties to their clients, prospective clients, and
employer. Members and Candidates must ensure that such
disclosures are prominent, are delivered in plain language, and
communicate the relevant information effectively
Knowledge of the Law
Members and Candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities.
In the event of conflict, Members and Candidates must comply with the more strict law, rule, or regulation. Members and Candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations.
Independence and Objectivity
Members and Candidates must use reasonable care and judgment to
achieve and maintain independence and objectivity in their professional activities. Members and Candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another’s independence and objectivity
Misrepresentation
Members and Candidates must not knowingly make any
misrepresentations relating to investment analysis, recommendations, actions, or other professional activities
Misconduct
Members and Candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.
Competence
Members and Candidates must act with and maintain the competence necessary to fulfill their professional responsibilities
INTEGRITY OF CAPITAL MARKETS
a. Material Nonpublic Information:
Members and Candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information
b. Market Manipulation:
Members and Candidates must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.
Duties to Clients
A. Loyalty, Prudence, and Care
B. Fair Dealing
C. Suitability
D. Performance Presentation
E. Preservation of Confidentiality
Loyalty, Prudence, and Care
Members and Candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment. Members and Candidates must act for the benefit of their clients and place their clients’ interests before their employer’s or their own interests
Fair Dealing
Members and Candidates must deal fairly and objectively with all
clients when providing investment analysis, making investment
recommendations, taking investment action, or engaging in other
professional activities
Suitability
- When Members and Candidates are in an advisory relationship with a client, they must:
a. Make a reasonable inquiry into a client’s or prospective client’s
investment experience, risk and return objectives, and financial
constraints prior to making any investment recommendation
or taking investment action and must reassess and update this
information regularly.
b. Determine that an investment is suitable to the client’s financial
situation and consistent with the client’s written objectives,
mandates, and constraints before making an investment
recommendation or taking investment action.
c. Judge the suitability of investments in the context of the client’s
total portfolio. - When Members and Candidates are responsible for managing a
portfolio to a specific mandate, strategy, or style, they must make
only investment recommendations or take only investment actions
that are consistent with the stated objectives and constraints of the
portfolio.
Performance Presentation
When communicating investment performance information, Members and Candidates must make reasonable efforts to ensure that it is fair, accurate, and complete.
Preservation of Confidentiality
Members and Candidates must keep information about current, former, and prospective clients confidential unless:
1. The information concerns illegal activities on the part of the
client or prospective client,
2. Disclosure is required by law, or
3. The client or prospective client permits disclosure of the
information.
DUTIES TO EMPLOYERS
A. Loyalty
In matters related to their employment, Members and Candidates must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer.
B. Additional Compensation Arrangements
Members and Candidates must not accept gifts, benefits,
compensation, or consideration that competes with or might reasonably be expected to create a conflict of interest with their employer’s interest unless they obtain written consent from all parties involved.
C. Responsibilities of Supervisors -
Members and Candidates must make reasonable efforts to ensure that anyone subject to their supervision or authority complies with applicable laws, rules, regulations, and the Code and Standards
INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS
A. Diligence and Reasonable Basis
B. Communication with Clients and Prospective Clients
C. Record Retention
A. Diligence and Reasonable Basis
Members and Candidates must:
- Exercise diligence, independence, and thoroughness in analyzing
investments, making investment recommendations, and taking
investment actions. - Have a reasonable and adequate basis, supported by appropriate
research and investigation, for any investment analysis,
recommendation, or action.
B. Communication with Clients and Prospective Clients
Members and Candidates must:
- Disclose to clients and prospective clients the nature of the services provided, along with information about the costs to the client associated with those services.
- Disclose to clients and prospective clients the basic format and
general principles of the investment processes they use to analyze
investments, select securities, and construct portfolios and must
promptly disclose any changes that might materially affect those
processes. - Disclose to clients and prospective clients significant limitations and risks associated with the investment process.
- Use reasonable judgment in identifying which factors are important to their investment analyses, recommendations, or actions
and include those factors in communications with clients and
prospective clients. - Distinguish between fact and opinion in the presentation of
investment analysis and recommendations
CONFLICTS OF INTEREST
A. Avoid or Disclose Conflicts
Members and Candidates must avoid or make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity and interfere with respective duties to their clients, prospective clients, and employer. Members and Candidates must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively.
B. Priority of Transactions
Investment transactions for clients and employers must have priority
over investment transactions in which a Member or Candidate is the
beneficial owner.
C. Referral Fees
Members and Candidates must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from or paid to others for the recommendation of products or services
RESPONSIBILITIES AS A CFA INSTITUTE MEMBER
OR CFA CANDIDATE
A. Conduct as Participants in CFA Institute Programs
Members and Candidates must not engage in any conduct that
compromises the reputation or integrity of CFA Institute or the CFA
designation or the integrity, validity, or security of CFA Institute programs.
B. Reference to CFA Institute, the CFA Designation, and the CFA Program
When referring to CFA Institute, CFA Institute membership, the CFA
designation, or candidacy in the CFA Program, Members and Candidates must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute, holding the CFA designation, or candidacy in the CFA Program
Appropriate
Suitable and proper for the circumstance
Beneficial Owner
A person or entity who ultimately owns, controls, has the power to direct, or has a material interest in a security or investment
Care
Acting in a prudent and judicious matter to avoid harm
Client
A person or entity for whom the member or candidate performs a professional service that is of the type usually provided in return for compensation