Ethics Flashcards
Ethics
shared beliefs about good or bad behavrios that follow moral priciples, e.g. honesty and fairness;
balance own interests with impact on stakeholders
role and specifics of code of ethics
role is to communicate to public that professionals will use their knowledge and skills to serve the clients in honest and; ethical manner; build trust;
- act in ethical manner to other;
- have integrity and clients comes first;
- use reasonable care and independent profession judgement (no conflict of interest);
- practice and encourage others to reflect credit to the investment profession;
- follow rules to promote markets integrity for the society;
- be competent
profession
occupational group with specialized knowledge focus on ethical behavior service community;
have set of professional behavior standards with continuing education, clients interest first;
if lack of trust, investors dont want to use investment services and increase perceived risk of providing capital, increased cost of capital; if incomplete or false infromation, lead to misallocation of capital and slow growth
suitability standard=match investment recommendation to risk tolerance and return required;
fiduciary standard/duty=act in clients interest
challenges to being ethical
people overating the ethical quality of their behavior (biased);
external influence like social pressure, moeny power fame, loyalty to employer but should be client first
ethical vs legal standards
illegal but ethical=civil disobedience (protest);
legal but unethical=taking shares in oversubsribed IPO instead of allocating to clients;
generally ethical has higher standard than legal
ethical decision-making framework
1.identify where is the conflict, ethical principals, clients first;
2. consider other options and seek guidance from superior;
3. make decision and act fiduciary duty;
4. evaluate outcome
Disciplinary Review Committee
CFA institutes’ board of governers, responsible for Professional Conduct Program and reinforce Code and Standards (review to see if need sanction and conduct inquiry to misconducts);
CFA institute, through Professional Conduct Staff, conducts inquiries related to professional conduct;
inquiry can be opened through:
self-disclosure by memebr, written complains from client, evidence of misconduct from news;
inquiry can be prompted by:
a report by CFA exam proctor; analysis of exam scores and monitoring of social media;
Professional Conduct Staff may decide:
1. no disciplinary sanctions are appropriate;
2. issue a cautionary letter;
3. discipline sanction the member (condemnation by peers or suspension of CFA participation);
standards of Professional Conduct I. professionalism
knowledge of law=understand and comply with law, rules and regulations of any government regulatory agency or professional activities; **comply with most strict law even if not in that country; do not knowingly assist in violation otherwise dissociate;
Guidance (whats required): most strict laws, dissociate, notify supervisor, inaction could be seen as participation, MAY confront wrongdoer directly, code of standard not required to report violation to government but US law do, must report money laundering tho;
Recommended procedures: maintain files, seek compliance advice, encourage firms to adopt code of ethics, distribute info internally on laws, written procedures for reporting violations, STRONGLY recommended to report violations
**independence and objectivity=use reasonable care and judgement to have INDEPENDENCE, PROFESSIONAL activity; do not accept any compensation that could compromise independence;
guidance: modest gift okay, no gift that influence behaviors; ALWAYS disclose to employer (permission if for future performance e.g. tickets), do not bow to pressure to issue favorable research**, for issuer-paid research flat fee structure and must disclose, pay for own commercial travel;
recommended procedures: report should be unbiased (paid ones as well), create a restriction list of no trading stocks, restrict special cost arrangements, limit gifts value set by firm*, careful with IPO share allocations;
misrepresentation=dont lie;
misconduct;
competence;
II. INTEGRITY OF CAPITAL MARKETS
**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.
II. INTEGRITY OF CAPITAL MARKETS **market manipulation
- distort price
-inflate volume
III. dueties to clients**
Loyalty, Prudence, and Care (client first);
Fair Dealing (fair to all clients);
Suitability (aligned to risk and return objectives);
Performance Presentation (fair, accurate and complete when communicate investment perforance)
Preservation of Confidentiality (dont share)
Iv. DUTIES TO EMPLOYERS
Loyalty;
**Additional Compensation Arrangements (no gifts from outside source, disclosure);
Responsibilities of Supervisors (active role to comply to standard as superviser)
V. INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS
Diligence and Reasonable Basis;
Communication with Clients and Prospective Clients (disclosure);
Record Retention
VI. CONFLICTS OF INTEREST
Avoid or Disclose Conflicts of interest (full and fair in plain language);
Priority of Transactions (client first);
**Referral Fees (disclose)
VII. RESPONSIBILITIES AS A CFA INSTITUTE MEMBER OR CFA CANDIDATE
Conduct as Participants in CFA Institute Programs;
**Reference to CFA Institute, the CFA Designation, and the CFA Program
A code of ethics establishes general principles for ethical behavior, while a code of professional standards provides specific with or without guidelines and expectations for professional conduct
