Vol. 6 LM6 Ethics and Trust Flashcards
Concept
encompasses a set of moral principles and rules of conduct that provide guidance for our behavior
p 265
ethics
Describe
ethics
p 265
encompasses a set of moral principles and rules of conduct that provide guidance for our behavior
Describe
ethical principles
p 265
are beliefs regarding what is good, acceptable, or obligatory behavior and what is bad, unacceptable, or forbidden behavior.
Concept
are beliefs regarding what is good, acceptable, or obligatory behavior and what is bad, unacceptable, or forbidden behavior.
p 265
ethical principles
Concpet
examines the role of consequences and personal character in defining what is considered good, or ethical, conduct
p 265
study of ethics
Concept
behavior that follows moral principles and balances self-interest with both the direct and the indirect consequences of the behavior on others
p 265
ethical conduct
Describe
code of ethics
p 266
codified beliefs about obligatory and forbidden conduct in a written set of principles
purpose
code of ethics
p 266
to communicate the organization’s values and overall expectations regarding member behavior
Concept
serve as benchmarks for the minimally acceptable behavior of community members and can help clarify the code of ethics
p 266
standards of conduct
Describe
profession
p 268
is an occupational community that has specific education, expert knowledge, and a framework of practice and behavior that underpins community trust, respect, and recognition.
Fill in the blank
____ is underpinned by codes and standards developed by professional bodies
p 268
professionalism
Concept
Most professional bodies make it a condition of membership that a specific amount of new learning is undertaken each year
p 269
continuing professional development
Concept
The publication of this in 1934 was an important step in establishing a body of knowledge for investment
p 270
Graham and Dodd’s Security Analysis
Concept
The CFA Institute Global Body of Investment Knowledge (GBIK) and Candidate Body of Knowledge (CBOK) are updated on an ongoing basis through a process known as
p 272
practice analysis
which of the following statements is most accurate? Investment professionals have a special responsibility to act ethically because
A. the industry is heavily regulated.
B. they are entrusted to protect clients’ assets.
C. the profession requires compliance with its code of ethics.
p 272
B. they are entrusted to protect client’s assets
Which of the following statements is most accurate? A profession’s code of ethics:
A. includes standards of conduct or specific benchmarks for behavior.
B. ensures that all members of a profession will act ethically at all times.
C. publicly communicates the shared principles and expected behaviors
of a profession’s members.
C. publicly communicates the shared principles and expected behaviors
of a profession’s members.
Define
situational influences
p 274
are external factors, such as environmental or cultural elements, that shape our thinking, decision making, and behavior
Experiments have shown that even people who consider themselves strong, independent, free thinkers will do this in most situations
p 274
conform to social pressures in many situations
list examples
situational influences
p 274
- bonuses
- promotions
- prestige
- loyalty to employer and colleagues
Which of the following will most likely determine whether an individual will behave unethically?
A. The person’s character
B. The person’s internal traits and intrinsic motivation
C. External factors, such as environmental or cultural elements
p 275
C. External factors, such as environmental or cultural elements
Which of the following statements is most accurate?
A. Large financial rewards, such as bonuses, are the most powerful situational influences.
B. When decision making focuses on short-term factors, the likelihood of
ethical conduct increases.
C. Situational influences can motivate individuals to act in their short-term self-interests without recognizing the long-term risks or consequences for themselves and others.
C is correct. Situational influences can motivate individuals to act in their
short-term self-interests without recognizing the long-term risks or consequences for themselves and others. Large financial rewards are powerful situational influences, but in some situations, other situational influences, such as loyalty to colleagues, may be even more powerful.
Concept
complying with specific written disclosures in marketing and other materials
p 276
ethical action
Concept
goes beyond what is legally required and encompasses what different societal groups or communities, including professional associations, consider to be correct behavior
p 277
ethical conduct
which of the following statements is most accurate
A. All legal behavior is ethical behavior.
B. Some ethical behavior may be illegal.
C. Legal standards represent the highest standard.
p 278
B is correct. Some ethical behavior may be illegal. Civil disobedience is an
example of what may be illegal behavior that some consider to be ethical.
Legal and ethical behavior often coincide but not always. Standards of conduct based on ethical principles may represent a higher standard of behavior than the behavior required by law.
Which of the following statements is most accurate?
A. Increased regulations are the most useful means to reduce unethical
behavior by market participants.
B. Regulators quickly design and implement laws and regulations to
address practices that adversely affect the fairness and efficiency of
markets.
C. New laws designed to reduce or eliminate conduct that adversely
affects the markets can create opportunities for different, but similarly
problematic, conduct.
C is correct. New laws designed to reduce or eliminate conduct that adversely affects the markets can create opportunities for different, but similarly problematic, conduct.
List steps
Ethical Decision-Making Framework
p 280
- Identify: relevant facts, stakeholders and duties owed
- Consider: situational influences, additional guidance
- Decide and act
- Reflect: was the outcome as anticipated?
Which of the following situational influences is likely to have the most effect on the financial adviser’s efforts to get new clients to invest in the funds? His relationship with his:
A. client.
B. employer.
C. teammates.
p 285
C is correct. The financial adviser’s relationship with his teammates is likely to have the most effect on the financial adviser’s efforts. The teammates share in earning the bonus from the employer. In addition, the team works with each other on a regular basis where there is a likelihood that social influences of working together play a role in decision making and effort.
Which of the following statements is most accurate? An ethical
decision-making framework:
A. is only beneficial when a firm lacks a code of ethics.
B. is used to improve compliance with laws and regulations.
C. is a tool for analyzing the potential alternative actions and conse-
quences of a decision.
p 285
C is correct. An ethical decision-making framework is a tool for analyzing
the potential alternative actions and consequences of a decision.
Which of the following is most accurate? Ethical decision-making frame-
works:
A. raise awareness of different perspectives.
B. focus attention on short-term consequences.
C. allocate more weight to those who will directly benefit from the
decision.
p 285
A is correct. Ethical decision-making frameworks raise awareness of different perspectives. The framework should consider short-term consequences, but they are not the focus of the framework. Similarly, the framework may allocate more weight to those who directly benefit from decision
Which of the following is most accurate? Ethical decision-making frameworks:
A. are not needed if behavior is legal.
B. identify who gains the most from a decision.
C. can help reduce unanticipated ethical lapses and unexpected
consequences.
p 286
C is correct. Ethical decision-making frameworks can help avoid unanticipated ethical consequences. As it relates to A, ethics standards are often higher than legal standards so an ethical decision-making framework would be needed. Although B is accurate, identifying who gains most from the decision is a small component of the framework.
Using an ethical decision-making framework, which of the following duties would most likely take precedence in the scenario described? The financial adviser’s duty to his:
A. client.
B. employer.
C. colleagues.
p 286
A is correct. Using an ethical decision-making framework, the financial adviser’s relationship with his client would most likely take precedence in this scenario. The adviser should put his client’s interests first. The exception to client interests taking precedence occurs when market integrity effects take precedence.
Using an ethical decision-making framework, the financial adviser would
most likely:
A. recommend that the elderly client invest at least some of his assets in
the highly rated fund.
B. research other investments that can provide steady income before
making a recommendation to his elderly client.
C. disclose the commission he would earn before recommending that the elderly client invest at least some of his assets in the highly rated fund.
p 286
B is correct. Using an ethical decision-making framework, the financial
adviser would identify the relevant facts, stakeholders, duties owed, and
potential conflicts. In this scenario, the financial adviser owes a duty to his
client as well as his employer. His client’s interests take precedence over all other interests. The bonus and his colleague’s desire to help his mother are situational influences. To navigate this situation, the financial adviser should seek additional information; he should research the risk and return parameters and fee structures of other investments that can provide steady income before making a recommendation to his client.
Concept
helps foster public confidence that members of the profession will use their specialized skills and knowledge to serve their clients and others
p 287
code of ethics
Concept
is an occupational group that has specific education, expert
knowledge, and a framework of practice and behavior that underpins community trust, respect, and recognition.
p 287
profession
Describe
a primary goal of professions is to …
p 287
primary goal of professions
potential issues
excessive focus on compliance
p 275
- may not encourage decision makers to consider the larger picture
- can oversimplify decision making
List reason
the law is not always the best mechanism to reduce unethical behavior
p 277
- laws typically follow market practices
- regulators may proactively design laws and regulations to address existing practices, which may adversely affect the fairness and efficiency of markets
- regulators’ responses typically take significant time
explain
ethical conduct vs legal conduct
p 277
ethical conduct goes beyond what is legally required and encompasses what different societal groups or communities
