LM:1 Ethics and Trust In The Investment Profession

Question 1

What is a profession?

Answer 1

community that has specialized knowledge & skills, commitment to serve others, and a shared code of ethics

Question 2

Describe the 3 steps to CFA Institute professional conduct program.

Answer 2

Grounds for discipline: any act which violates the code & standards

Investigation by Designated Office (DO): DO conclude investigation with no disciplinary action. If disciplinary action you can accept it or go to hearing

Hearing: member rejects sanction, case against member prepared to take place in front of hearing panel of 3 or more members (aka DRC (Disciplinary Review Committee)

Question 3

What is ethics?

Answer 3

Ethics is study of making good decisions

Question 4

What does ethics encompass?

Answer 4

Encompasses set of moral principals & rules of conduct that provide guidance for our behavior

Question 5

What is code of ethics?

Answer 5

Publicly communicates established principles & expect behavior of its members

Question 6

What is standards of conduct?

Answer 6

benchmark for minimally acceptable behavior of community members and can help clarify code of ethics

Question 7

What are laws & regulations?

Answer 7

Rules of conduct defined by government or related entity’s

Question 8

What are the 3 challenges to ethical behavior?

Answer 8

• overconfidence
• situational influences
• focusing on immediate instead of long-term outcomes or consequences of a decision

Question 9

What are 10 ways professions establish trust? NPCHBCMCRE

Answer 9

1. Normalize practitioner behavior
2. Provide service to society
3. Client focused
4. High entry standards
5. Body of expert knowledge
6. Continuing education
7. Monitor professional conduct (hold members accountable)
8. Collegial
9. Recognized oversight bodies
10. Encourage engagement of members

Question 10

What are situational influences?

Answer 10

External factors that may shape our behavior

Question 11

Describe the 4 step approach to ethical decision making?

Answer 11

1. Identify: relevant facts, stakeholders, conflicts of interest
2. Consider: situational influences, alternative actions, etc.
3. Decide & act on it.
4. Reflect weather the outcome was anticipated

Question 12

Decision makers who use a compliance approach are most likely to:

a. Avoid the situational behaviors
b. Oversimplify decision making
c. Consider more factors when using an ethical decision-making approach

Answer 12

B. Oversimplify decision making

Question 13

To maintain trust, the investment management profession must be interdependent with:

A. Regulators
B. Employers
C. Investment firms

Answer 13

C. Investment firms

Investment firms and investment professionals must be interdependent to maintain trust

Question 14

When an ethical dilemma occurs, an investment professional should most likely first raise the issue with a:

A. Mentor outside the firm
B. Professional body’s hotline
C. Senior individual in the firm

Answer 14

C. Senior individual in the firm

some businesses may be required to be confidential inside a business so best to stay with in the business if possible

Question 15

What is the 4 step approach to ethical decision making framework?

Answer 15

1. Identify
2. Consider
3. Decide & Act
4. Reflect

Question 16

Where are the 5 sources a professional conduct inquire comes from?

Answer 16

• members & candidates must self disclose on al matters the question their professional conduct
• written complaints received by professional conduct staff can warrant an investigation
• media, regulator notices, or another public source
• proctors on testing days
• CFA institute self conducting analysis

Question 17

What are 3 possible sanctions imposed if the code & standards of CFA institute are broken?

Answer 17

• public censure
• suspension of membership and use of CFA designation
• revocation of the CFA charter