Standards of Professional Conduct (7 Standards) Flashcards
1.) Members and Candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities
a.) For differing laws, member must abide by the strictest applicable law
2.) In the event of conflict, Members and Candidates must comply with the stricter law, rule, or regulation
3.) Members and Candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations
I: A
Professionalism: knowledge of law
1.) Use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities.
2.) Must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another’s independence and objectivity
a.) Gifts are acceptable, as long as they are disclosed to employer
b.) Allows issuer-paid research as long as the analysis is thorough, independent, unbiased, and has a reasonable and adequate basis for its conclusions, and the compensation from the issuer is disclosed
c.) Consider the potential for conflicts of interest inherent in credit ratings and may need to do independent research to evaluate the soundness of these ratings
I:B
Professionalism: Independence & Objectivity
1.) Must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities
2.) Members must cite sources of information, unless the info is factual data from a recognized financial or statistical reporting service
I:C
Professionalism: Misrepresentation
1.) Do not engage in conduct of dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence
a.) Members must not try to use enforcement of this Standard against another member to settle personal, political, or other disputes that are not related to professional ethics or competence
b.) Acts committed outside the professional capacity are misconduct if they reflect poorly on a member’s honesty, integrity, or competence
I:D
Professionalism: Misconduct
1.) When in possession of material nonpublic information that could affect the value of an investment, member must not act or cause others to act on the information
II: A
Integrity of Capital Markets: Material Nonpublic Information
1.) Do not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants
II: B
Integrity of Capital Markets: Market manipulation
1.) Duty of loyalty to clients and must act with reasonable care and exercise prudent judgment
2.) Must act for the benefit of their clients and place their clients interests before their employer’s or their own
III: A
Duties to Clients: Loyalty, Produce, Care
1.) Deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities
III: B
Duties to Clients: Fair Dealing
1.) Advisory relationship between member and client, Members must:
*Have a full understanding of investment experience, risk, return objectives, financial constraints prior to making recommendations
* Determine that an investment is suitable for client’s need based on written objectives
*Judge the sustainability of investments in the context of the total portfolio
2.) When Members and Candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must make only investment recommendations or take only investment actions that are consistent with the stated objectives and constraints of the portfolio
III: C
Duties to Clients: Suitability
1.) Fair, accurate, and complete performance information must be communicated to the client
III: D
Duties to Client: Performance Presentation
1.) Client information is confidential unless circumstance of legal action permits or client gives approval, for current, former, and prospective clients
III: E
Duties to Clients: Confidentiality
1.) Act in the benefit of their employer and not deprive them of the advantage of their skills and abilities, divulge confidential information or cause harm to their employer
IV: A
Duties to Employers: Loyalty
1.) Must not accept gifts, benefits, compensation, that could create a conflict of interest with their employer, unless they obtain written content from all parties involved
IV: B
Duties to Employer: Additional Compensation Arrangements
1.) Make reasonable efforts that anyone under their supervision or authority complies with laws and code of standards
IV: C
Duties to Employers: Responsibilities of Supervisors
1.) Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions
2.) Have a reasonable and adequate basis, supported by appropriate research and investigation for all analysis, recommendation, and action
V: A
Investment Analysis, Recommendations, and Actions: Diligence and reasonable basis
1.) Disclose to client the format and general principles of the investment process and strategies they use
2.) Disclose to client significant limitations and risk associated with the investment process and actions
3.) Use reasonable judgement in identifying which factors are important to analysis, recommendation, or actions
4.) Distinguish fact vs opinion
V:B
Investment Analysis, Recommendations, and Actions: Communication with clients and prospective clients
1.) Develop and maintain appropriate records to support their investment analysis, recommendations, actions, and other investment-related communications with clients and prospective clients
V: C
Investment Analysis, Recommendations, and Actions: Record Retention
1.) Full and fair disclosureof all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients, and employer
2.) Disclosures must be prominent, delivered in plain language, and communicate relevant information effectively to clients, prospects, and employer
VI: A
Conflicts of Interest: Disclosure of Conflicts
1.) Investment transactions for clients and employers must have priority over investment transactions in which a member or candidate is the beneficial owner
VI: B
Conflicts of Interest: Priority of transactions
1.) Members and Candidates must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received by, or paid to, others for the recommendation of products or services
VI: C
Conflicts of Interest: Referral Fees
1.) Members/candidates must not engage in any conduct that compromises the reputation or integrity, validity, or security of CFA institute
VII: A
Responsibilities as a CFA Institute Member or CFA Candidate: Conduct as participants in the CFA institute programs:
1.) Do not misrepresent or exaggerate the meaning or implications of membership
VII: B
Responsibilities as a CFA Institute Member or CFA Candidate: Reference to CFA institute, CFA designation, and the CFA program:
