Reading 3: Standard 1 (Professionalism)

Question 1

Standard 1: Professionalism

Answer 1

Follow the code of ethics established by the CFA charter for there profession which is investment profession.

Question 2

Standard 1A: Knowledge of the Law (Professionalism)

Answer 2

The knowledge of the law states that all charter holders must keep all laws, rules, and regulations of the CFA Institute Code of Ethics and Standards of professional Conduct.
And when possible, if you have conflicting regulations, always follow the most STRICT regulations.

Recommendations for CFA members-
a.) try to keep employees informed of changes in relevant laws, rules, and regulations

b. ) review or encourage employer to review, the firm’s written compliance procedures on a regular basis.
c. ) maintain or encourage employer to maintain, copies of current laws, rules, and regulations.
d. ) when in doubt about legality, consult supervisor, compliance personnel, or a lawyer.
e. ) when dissociating from violations, keep records documenting the violations, encourage employer to bring an end to the violations.
f. ) There is no requirement in the standards to report wrongdoers, but local law may require it; members are “strongly encouraged” to report violations.

Question 3

Standard 1B: Independence and Objectivity (Professionalism)

Answer 3

Under professionalism, there is a clause called independence and objectivity.

Independence= that you make your own decisions whenever making investment analysis decisions

Objectivity= you are objective to the type of individual that is receiving your services. You are also not willing to accept any gifts, benefits, compensations, or considerations that reasonably could be expected to compromise their own or another’s objectivity and independence.

Recommendations:
-restrict employee participation in IPOs and private placements because can be breeding grounds for loss of independence

• appoint a compliance officer
• limit gifts from clients

Question 4

Standard 1C: Misrepresentation (Professionalism)

Answer 4

What is misrepresentation in professionalism?

• members and candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

EX: Knowingly misleading investors, omitting relevant information, plaigarizing, etc.

Recommendations:
- plagiarism of data is considered misrepresentation
-guaranteeing any type of return unless stated by the govt is misrepresentation and unprofessional.
-selecting a performance benchmark that is NOT
COMPARABLE to the given investment
-Presenting performance data or attribution analysis that omits accounts or relevant variables.
-Offering false or misleading information about the analyst’s or firm’s capabilities, expertise, or experience.
-using marketing materials from a 3rd party that are misleading.

Question 5

Standard 1D: Misconduct (Professionalism)

Answer 5

Members and candidates should not lie, deceit, cheat that will reflect poorly on the CFA license that you get.

Recommendations:

• Develop and adopt a code of ethics and make clear that unethical behavior will not be tolerated.
• Give employees a list of potential violations and sanctions, including dismissal.
• Check references of potential employees.