Reading 1 Ethics and Trust Flashcards
What are situational influences?
Social, cultural, and environmental factors can impact our behavior and decision making, both positively and negatively. The challenge is to recognize when these influences weight our ethical scales and result in unethical actions.
Who are the stakeholders in the investment industry?
Clients and the investing public (i.e., investors and/or borrowers)
Members and candidates and their employers (i.e., intermediaries)
Legal and regulatory authorities
Society in general
List the 3 types of trust specific to the financial system.
The client–advisor relationship
Information and knowledge asymmetries
Intangibility of investment products and services
A code of conduct that further describes expected member behaviors or implements rules is known as what?
Standards of conduct
Why are high ethical standards expected in the investment industry?
Borrowers trust that capital will be delivered as agreed; investors trust that their risk, return, and other constraints will be met. Without this trust, capital will not flow smoothly, and results for the economy will be suboptimal.
Identify the 4 types of legal versus ethical outcomes.
Legal and ethical
Legal but unethical
Illegal but ethical
Illegal and ethical
In developing a framework for ethical decision making what must be considered?
The effect of a decision on stakeholders, not only in the short term but in the longer term.
When a group within a society develops a means to communicate its own values, this is called what?
Code of ethics
List the two categories standards may be grouped into.
Rules–based standards—Apply to specific groups in specific circumstances.
Principles–based standards—Apply to all members regardless of situation.
List the sources of potential external guidance.
CFA Institute Code and Standards
Company policies
Family members
Mentors
Your company compliance department
Outside legal counsel
Define profession.
A profession is a group that agrees to a common code of ethics in serving others by using their specialized knowledge and skills.
Define ethics.
A system of principles, beliefs, and values that guide (or society believes should guide) our behavior.
Describe the bystander effect.
The effect represents a failure to offer help to someone when others are nearby and not helping.
Differentiate between principles, beliefs, and values.
Principles are fundamental truths that form the basis for a chain of reasoning leading to beliefs about cause and effect and the way things should and shouldn’t be.
Beliefs form a system of values describing goals or ideals that we have decided benefit us as individuals or society as a whole.
Standards of Practice Handbook
Code of Ethics
Standards of Professional Conduct (Code and Standards)
The mission of CFA Institute is
“to lead the investment profession globally, by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society.”
Overconfidence Bias
Overconfidence can lead us to believe our ethical treatment of a client is superior relative to the industry. As a result, decisions may not be fully considered and clients are treated at a less than desirable standard.
Situational Influences
Situational influences arise from external rather than internal inputs. Social, cultural, and environmental factors can impact our behavior and decision making, both positively and negatively.
Steps in Making Ethical Decisions
Identify—Facts of the situation, ethical/legal obligations to stakeholders, and potential conflicts of interest.
Consider—Potential alternatives, situational influences, and guidance external to the situation.
Decide and act.
Reflect—Why or why didn’t the decision yield the expected result?
