LOS1: Ethics and Trust

Question 1

Explain Ethics

Answer 1

The shared belief of good behavior. Balance of self-interest, and impact on others.

Question 2

Role of Code of Ethics in Profession

Answer 2

Communicate to the public a set of moral principles that guide behavior.

Question 3

Define Profession

Answer 3

Group of people with specialized skills.

Question 4

Challenges to Ethical Behavior

Answer 4

Individuals rate their ethical behavior on a relative basis.

Question 5

List Situational Influences Causing People to Behave Unethically

Answer 5

Loyalty to, or social pressure from others (boss, co-worker. …). Prospect of gaining more prestique.

Question 6

Examples of Unethical Behavior

Answer 6

Focusing on self-interest, focusing on short-term results instead of long-term results. Providing incomplete, misleading, or false information to clients.

Question 7

Drawback of a Company Having Rule-Based Compliance Procedures

Answer 7

Individuals think of what they CAN do, instead of what they SHOULD do. Rules >Frame.

Question 8

Why Ethics in Investment Professionals

Answer 8

Clients trust with their wealth. Investment advice is intangible, therefore trust is important.

Question 9

Impact of No Ethics

Answer 9

Damage client wealth. Damage investment professionals reputation. Higher risks for clients when investing.

Question 10

Impacts of Providing Wrong Financial Information

Answer 10

Clients will allocate their wealth in the wrong companies,. Misallocation will prevent good companies to grow, and will slow down the growth of an economy.

Question 11

Ethics vs Law

Answer 11

Ethics usually provide a higher standard of behavior. Ethics usually require more judgment and consideration of the impact of the behavior.

Question 12

How to Apply an Ethical Framework

Answer 12

Embed ethics in a firm’s decision making process. Review decisions alternatives and thier short/long-term impacts.

Question 13

Why Use an Ethical Framework

Answer 13

Identify issues. Examine issues from different perspectives. Develop judgment and decision-making skills. Avoid unanticipated ethical consequences.

Question 14

CFA Ethical Framework 4 steps

Answer 14

Identify / Consider / Decide and Act / Reflect

Question 15

CFA Ethical Framework: Identify (4 items)

Answer 15

Relevant facts (and the ones to find), stakeholders and duties owned, ethical principles, conflicts of interest.

Question 16

CFA Ethical Framework: Consider (3 items)

Answer 16

Situational influences, additional guidance (mentors, friends, legal, compliance department, …), Alternative actions.

Question 17

CFA Ethical Framework: Reflect

Answer 17

Was the outcome expected? Why or why not?

Question 18

True/False: Usually, laws are more specific than ethical principles.

Answer 18

True. Laws often address previous unethical behavior.