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IMC - Unit 1 > Ethics & Investment Proffessionalism > Flashcards

Ethics & Investment Proffessionalism Flashcards

1
Q

What is the code of ethics?

A

A set of basic principles that ensure people behave for the benefit of all.

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2
Q

What are the six elements of the code of ethics?

A
  1. Act in an ethical manner eg. With respect
  2. Deal fairly and objectively with all clients. Place clients and investment profession ahead of personal interests
  3. Be reasonable and exercise your own judgement when making professional investment actions.
  4. Encourage other people to also act with credibility and ethically.
  5. Promote and protect the integrity of capital markets.
  6. Be competent.
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3
Q

In the standards a of professional conduct, what are the four things that demonstrate professionalism?

A
  1. Knowledge
  2. Independence and objectivity.
  3. Misrepresentation.
  4. Misconduct
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4
Q

In the standards a of professional conduct, what are the two things that demonstrate integrity of capital markets?

A

A. Material non-public information
B. Market manipulation.

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5
Q

In the standards a of professional conduct, what are the duties to clients? (5)

A
  1. Loyalty, prudence and care - be loyal to clients
  2. Fair dealing -
  3. Provide suitable recommendations
  4. Performance presentation - provide fair, accurate and complete info
  5. Preservation of confidentiality.
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6
Q

In the standards a of professional conduct, what are the 3 duties to employers?

A
  1. Loyalty
    A additional compensation arrangement
  2. Responsibilities of supervisors. ,,
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7
Q

What are the two schools of thought re unethical behaviour?

A
  1. Unethical behaviour is caused by an environment/situation a person is in.
  2. Altitude or personality of the individual.
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8
Q

What could lead to unethical behaviour? (8)

A
  1. Undue pressure to perform
  2. Blaming others when team working
  3. Rationalising unethical behaviour eg. ‘They’re doing it too?
  4. Conflicts of interest impacting judgement
  5. Not willing to conduct proper research because busy
  6. No regard or care for clients.
  7. Being unethical by omission.
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9
Q

What duty does an employer have to their place of work?

A

Act in beneat of employer and not hide skills / act bad. No bad behaviour e.g. Sharing confidential information. Not accept gifts or compensation. Ethical and creditable behautour.

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10
Q

How could the government intervene when there is unethical behaviour? (5)

A
  1. New/higher taxes
  2. Regulation
  3. Breaking participants’ businesses.
  4. Restrictions.
  5. Greater disclosure I reporting.
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11
Q

What are the potential penalties of unethical conduct?

A
  1. Disciplinary action from professional bodies.
  2. Disapproval from clients, colleagues etc.
  3. Negative publicity
  4. Loss of job
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12
Q

How can investment advisors act negligent? (5)

A
  1. Too much risk
  2. Buying inappropriate investments
  3. Lack of invest meat diversification.
  4. Excessive trading → costs
  5. Buying products that charge sees, not performance beneficial.
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13
Q

Professionalism: what is knowledge of the law?

A

Maresure you comply with all the laws. If there are two laws, go with the most strict law. Investment professionals should have good knowledge of regulations. They should seen advice from compliance in doubt.

Where a violation is suspected, report it.

Disassociate from any illegal/ unethical or behaviour.

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14
Q

Professionalism: what is independence and objectivity?

A

Remain partial - don’t be bribed.

Investment professionals should pay for own transports accommodations. Avoid issuer regularly being a host and decline lavish gifts.

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15
Q

Professionalism: misrepresentation.

A

Don’t make any false representations or false statements. Do not plagense.

Investment professionals should keep records of sources they use and cite quotes and statistics.

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16
Q

Professionalism: misconduct.

A

Do not engage in dishonesty, fraud or deceit. → excessive drinking during business hours., manipulation of expense accounts

17
Q

Integrity of capital markets: material non-public information.

A

Material = impacts price of security or investors would want to know level.

→ do not say or act in a way that could affect the value of an investment.

How do they safeguard against this? Firms set up information banners.

18
Q

Integrity of capital markets - market manipulation

A

Do not act in ways that could manipulate the market.

19
Q

Duties to clients: loyalty, prudence and care.

A

Act in the best interest of your clients before acting on your own interests.

IM’s should always vote on a proxy issue lunness client otherwise says so.

20
Q

Duties to clients = fair dealing.

A

Do not favour one client over another when giving recommendations

Discretionary and non-discretionary clients must be treated equally

21
Q

What are the three services I’m professionals will offer:

A
  1. Discretionary - client outsources decision making to form so we exercise our decisions and recommendations
  2. Advisory - we give clients recommendations and advice on what to do with investment but we don’t execute.
  3. Execute only - client gives us instructions and we execute. (Broker)
22
Q

Duties to clients.: suitability.

A

Advisory relationship - make sure you know client + their risk appetites, objectives etc. Ensure investment is suitable for their portfolio

Managing portfolio - be consistent in your actions with the stated objecting and constraints of the portfolio.

23
Q

Duties of clients - performance presentation.

A

Investment professionals are encouraged to adopt CFA institute gips

G.I.P.S → global investment performance standard. = set of best formats to present data.

24
Q

Duties of clients-preservation of confidentiality.

A

Keep private info secret → disclosure by law.

Disclosing concerns of illegal activity.

25
Q

Duties to employers - loyalty

A

Must act in employers best interest until you leave

If you want to act independently, pre-approval needed

26
Q

Duty to employer: additional compensation arrangements.

A

Payments or benefits from clients or third parties should be documented as written consent by both parties, otherwise prohibited.

27
Q

Investment analysis, recommendations and actions: diligence and reasonable bias

A

Be thorough and careful when carrying out investment decisions and making recommendations. Make sure research is carefully executed. If suspected info is wrong, do not use.

28
Q

Investment analysis, recommendations and actions: communication with clients.

A

Make sure to disclose all information on what we do. Tell them risks and limitations. Include important investment analysis factors. Ensure facts and opinions are distinguished in recommendations. Make sure you are transparent and didn’t understands.

29
Q

Investment analysis, recommendations and actions: record retention.

A

Mane sure records of everything are kept so you can demonstrate as evidence

30
Q

Conflict of interest: disclosure of clients.

A

Disclose all information that could impact/conflict the dunes to your client.

Be objective. Disclose any direct lindireer beneficial interests or directorships.

Make sure discussed with compliance.

31
Q

Conflicts of interest: priority transactions

A

Always put the client’s needs first, above your own.

Do not front-run ie. If client pays for research on investments, client gets first dibs.

32
Q

Conflicts of interest: referral fees

A

Must be disclosed. Give them nature of benefit and estimate of the monetary value

33
Q

Responsibilities as a CPA member or candidate: conduct as members and candidates in the CFA programs

A

Do not compromise reputation and integrity of CFA institute
Do not say it constitutes as good recommendations

IMC - Unit 1 (4 decks)

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