Ethics and Professional Standards

Question 1

Ethics Overview

Answer 1

Ethics Overview: Broad Interpretation (err on the side of massive disclosure), always side with client than employer than yourself, defend CFA, assume inexperienced investor

Code of Ethics”
- Act with integrity, competence, diligence, respect, and in an ethical manner
- Place integrity of investment profession and clients first
- Use reasonable care and exercise independent professional judgement
- Promote integrity and viability of markets for all society
- Maintain and improve your own professional competence and others
- Practice and promote others to practice in ethical manner

Question 2

Standard I Professionalism (Knowledge of Law, Independence and Objectivity, Misrepresentation and Misconduct) & Standard II Integrity of Capital Markets (Material Nonpublic Info and Market Manipulation)

Answer 2

Standard I Professionalism
I(A) Knowledge of Law: Understand and comply with law, can’t participate in breaking law, don’t need to snitch on coworkers to authorities though. Also covers your fiduciary duties to clients and prospects
I(B) Independence and Objectivity: Use reasonable care, don’t offer/accept anything that makes you not independent
I(C) Misrepresentation: Do not knowingly misrepresent facts in your profession
I(D) Misconduct: Do not be dishonest, deceitful or fraudulent in profession, can get DUI but don’t commit fraud in profession

Standard II Integrity of Capital Markets
II(A) Material Nonpublic Information: Can’t act or make others act on nonpublic info that changes an investment decision
II(B) Market Manipulation: Do not engage in practices to mislead market with distorted prices or artificial volume

Question 3

Standard III Duties to Clients (Loyalty, Prudence and Care, Fair Dealing, Suitability, Performance Presentation, & Confidentiality)

Answer 3

Standard III Duties to Clients
III(A) Loyalty, Prudence, and Care: Always act in benefit of client, put client interest above your employers and your own, be loyal to clients, fiduciary duty to client is now covered in knowledge of the law
III(B) Fair Dealing: Must deal fairly with all clients when providing insight or investment advice, need to release recommendations to all clients at once, once everyone know you are allowed to meet with bigger clients first but need to fairly notified everyone
III(C) Suitability: Must act in suitable interest to client/prospect as well as when managing portfolio. Understand client needs and experience in order to make educated investment decisions and use PPM for portfolio decision making guidance
III(D) Performance Presentation: Performance presentation must be fair, accurate, complete
III(E) Preservation of Confidentiality: All info about current/former/future clients must be confidential unless law requires to disclose or client allows you to disclose or illegal activity like money laundering is occurring, all client info is covered

Question 4

Standard IV Duties to Employers (Loyalty, Additional Comp, Responsibilities of Supervisors) & Standard V Investment Analysis, Recommendations, and Analysis (Diligence and Reasonable Basis, Communication with Client, Record Retention)

Answer 4

Standard IV Duties to Employers
IV(A) Loyalty: Place employer above own interest, do not withhold your skills from your employer, allowed to whistleblow if you are protecting the integrity of the capital markets
IV(B) Additional Comp: No gifts, benefits, comp, or consideration that impedes independence or creates a conflict of interest. Need to receive written consent from all parties to accept a gift
IV(C) Responsibilities of Supervisors: Must make reasonable effort to ensure anyone under your supervision complies with laws and rules, Code of Standards is recommended

Standard V Investment Analysis, Recommendations, and Analysis
V(A): Diligence and Reasonable Basis: Use diligence, independence, and thoroughness, must make sure your decision is reasonable and your research is adequate, supported by research. If you get data from outside the firm you must disclose that it is from outside the firm unless it is public data like S&P 500 stock price
V(B) Communication with Clients and Prospects: Disclose methods that are used to come to investment decisions and any changes that are made to investment policy in clean and complete language to investors
V(C) Record Retention: Maintain all relevant info to get to your investment idea, if no policy at firm than keep for 7 years

Question 5

Standard VI Conflict of Interest (Disclose, Priority of Transactions, Referral Fees) & Standard VII Responsibilities of CFA Members (Conduct and Reference to CFAI)

Answer 5

Standard VI Conflicts of Interest
VI(A) Disclosure of Conflicts: Fully and fairly disclose conflicts and all matters that may impair your independence or objectivity with employer or clients in plain language
VI(B) Priority of Transactions: Clients/employer get priority of transaction over you always, no matter what
VI(C) Referral Fees: Must disclose any comp/benefits/consideration received by or paid for recommendations of products or services

Standard VII Responsibilities of CFAI Member or CFA Candidate
VII(A) Conduct of CFAI Members or Participants: Do not compromise reputation or integrity of CFAI, its programs, or the designation, don’t cheat on the exam
VII(B) Reference to CFAI: Can’t misrepresent, no partial designations, can’t exaggerate meaning/impact that having CFA will have on your performance or returns, but you are allowed to say that you passed on your 1st try