2. Ethics Flashcards
(44 cards)
Ethics (definition)
- Shared beliefs on what is good / acceptable
Code of Ethics (definition)
- Written set of moral principals that can guide behavior by describing what is considered acceptable
Suitability v. Fiduciary Responsibility (concept)
- Fiduciary is stronger (to act in client’s best interest)
- Suitability is to offer adequate products (return v. risk)
Deteminant of behavior
- Circumstances / external / situational influences are more important
Ethical v. Legal Standards
- Not all unethical actions are illegal
- Not all illegal actions are not ethical
- You should consider the most strict rule
Ethical Decision Making Framework
- Identify (facts, duties, ethical principals, conflicts of interest)
- Consider (influences, alternative actions)
- Decide (to act)
- Reflect
Code of Ethics Components
There are 6 (APUPPM)
- Act with integrity
- Place the integrity above all; client above personal interests
- Use reasnable care and exercise independent judgment
- Practice and encourage others to act based in ethics and profession
- Promote integrity of the capital markets
- Maintain and improve professional competence
Standards of Professional Conduct
There are 7 (PIDDIRC) = PDD Cruz Vermelha
- Professionalism
- Integrity of Capital Markets
- Duties to Clients
- Duties to Employers
- Investment Analysis, Recomend and Act
- Conflicts of Interest
- Responsibilities as a CFA Institute Member
Standard I (Professionalism)
- KIMM Kardashian
- Knowledge of the Law
- Independence / Objectivity
- Misrepresentation (misleading data)
- Misconduct (dishonesty, fraud)
Standard II (Integrity of Capital Markets)
M&Ms
- MNPI
- Market Manipulation
Standard III (Duties to Clients)
Lefosse PREP
- Loyalty, Prudence and Care
- Fair Dealing
- Suitability
- Performance Presentation (fair, accurate and complete)
- Preservation of Confidentiality
Standard IV (Duties to Employers)
LAR
- Loyalty
- Additional Compensation Arrangements
- Responsibility of Supervisors
Standard V (Investment Analysis, Recommendations, Actions)
Dacar
- Diligence and Reasonable Basis
- Communication with Clients
- Record Retentions
Standard VI (Conflicts of Interest)
Dopar
- Disclosure of conflicts
- Priority of Transactions
- Referral fees
Standard VII (Responsibilities as a CFA Candidate/Member)
- Do not engage in any actions that compromises CFA Inst. reputation
- Reference to the membership should be accurate
Token gift
Business dinner is ok; SuperBowl tickets are not
Motivations matter?
They don’t. If you are prohibited from some action, they do not matter.
Standard I (Professionalism) - A
- Knowledge of the Law
- Violations always violate Standard I (A)
- CFA “strongly encourages” you to report, dissociate or resign from the firm if previous options are not taken
Standard I (Professionalism) - B
- Independence & Objectivity
Dont’s:
- Do not accept gifts that compromise your independence
- Disclose everything to the employer
- Do not receive compensation that compromises your behavior
- Pay your own travel unless it is in the middle of nada
Standard I (Professionalism) - C
- Misrepresentation
Dont’s:
- Plagiarize
- Omit accounts or relevant info
- Present the wrong benchmark
- Guarantee a specific return
Standard I (Professionalism) - D
- Misconduct
Dont’s:
- Fraud
- Commit anything that compromises reputation, integrity or competence
Standard II (Integrity of Capital Markets) - A
MNPI: info that affects price OR if a reasonable investor wants it prior to making decisions
Mosaic Theory
Standard II A
- Usage of Non-Material Private Info + Perception based in public info does not violate MNPI Standard II - A.
Standard II (Integrity of Capital Markets) - B
Market Manipulation
- If there is the intent to mislead, then the standard is violated