Ethics Flashcards
(31 cards)
Describe the Code of Ethics members of the CFA Institute must subscribe to.
Act with integrity, competence, diligence, and respect.
Place the integrity of the investment profession and the interests of clients above their own.
Use reasonable care and exercise independent professional judgment.
Practice and encourage others to practice in a professional and ethical manner.
Promote the integrity and viability of the global capital markets for the ultimate benefit of society.
Maintain and improve their professional competence.
Name the 7 areas of the Standards of Professional Conduct.
I. Professionalism
II. Integrity of Capital Markets
III. Duties to Clients
IV. Duties to Employers
V. Investment Analysis, Recommendations, and Actions
VI. Conflicts of Interest
VII. Responsibilities as a CFA Institute Member or CFA Candidate
List the areas of Professionalism (I) that are part of the CFA Institute Standards of Professional Conduct.
A. Knowledge of the Law
B. Independence and Objectivity
C. Misrepresentation
D. Misconduct
List the areas of Integrity of Capital Markets (II) that are part of the CFA Institute Standards of Professional Conduct.
A. Material Nonpublic Information
B. Market Manipulation
List the areas of Duties to Clients (III) that are part of the CFA Institute Standards of Professional Conduct.
A. Loyalty, Prudence, and Care
B. Fair Dealing
C. Suitability
D. Performance Presentation
E. Preservation of Confidentiality
List the areas of Duties to Employers (IV) that are part of the CFA Institute Standards of Professional Conduct.
A. Loyalty
B. Additional Compensation Arrangements
C. Responsibilities of Supervisors
List the areas of Investment Analysis, Recommendations, and Actions (V) that are part of the CFA Institute Standards of Professional Conduct.
A. Diligence and Reasonable Basis
B. Communication with Clients and Prospective Clients
C. Record Retention
List the areas of Conflicts of Interest (VI) that are part of the CFA Institute Standards of Professional Conduct.
A. Disclosure of Conflicts
B. Priority of Transactions
C. Referral Fees
List the areas of Responsibilities as a CFA Institute Member or CFA Candidate (VII) that are part of the CFA Institute Standards of Professional Conduct.
A. Conduct as members and candidates in the CFA program
B. Reference to CFA Institute, the CFA Designation, and the CFA Program
I(A): Knowledge of the Law
Members must understand and comply with laws, rules, regulations, and Code and Standards of any authority governing their activities.
In the event of a conflict, follow the more strict law, rule, or regulation.
Do not knowingly participate or assist in violations, and disassociate from any known violation.
I(B): Independence and Objectivity
Members and Candidates must use reasonable care and judgment to exercise independence and objectivity in professional activities.
Members and Candidates are not to offer, solicit, or accept any gift, benefit, compensation, or consideration that would compromise either their own or someone else’s independence and objectivity.
I(C): Misrepresentation
Members and Candidates must not knowingly misrepresent facts regarding investment analysis, recommendations, actions, or other professional activities.
Do not make any misrepresentations or give false impressions.
I(D): Misconduct
Members and Candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their integrity, good reputation, trustworthiness, or professional competence.
II(A): Material Nonpublic Information
Members and Candidates in possession of nonpublic information that could affect an investment’s value must not act or induce someone else to act on the information.
Information is “material” if its disclosure would impact the price of a security or if reasonable investors would want the information before making an investment decision.
II(B): Market Manipulation
Members and Candidates must not engage in any practices intended to mislead market participants through distorted prices or artificially inflated trading volume. Spreading false rumors is also prohibited.
III(A): Loyalty, Prudence, and Care
Members must always act for the benefit of clients and place clients’ interests before their employer’s or their own interests. Members must be loyal to clients, use reasonable care, and exercise prudent judgment.
Client interests always come first.
III(B): Fair Dealing
Members must deal fairly and objectively with all clients and prospects when providing investment analysis, making investment recommendations, taking investment action, or in other professional activities.
Do not discriminate against any clients when disseminating recommendations or taking investment action.
Fairly does not mean equally.
III(C): Suitability
- When in an advisory relationship with client or prospect, Members and Candidates must:
- Make reasonable inquiry into clients’ investment experience, risk and return objectives, and constraints prior to making any recommendations or taking investment action, update regularly.
- Be sure investments are suitable to a client’s financial situation and consistent with client objectives before making recommendation or taking investment action.
- Make sure investments are suitable in the context of a client’s total portfolio.
- When managing a portfolio, investment recommendations and actions must be consistent with the stated portfolio objectives and constraints.
III(D): Performance Presentation
Presentations of investment performance information must be fair, accurate, and complete.
Members must avoid misstating performance or misleading clients/prospects about investment performance of themselves or their firms, should not misrepresent past performance or reasonably expected performance, and should not state or imply the ability to achieve a rate of return similar to that achieved in the past.
III(E): Preservation of Confidentiality
All information about current and former clients and prospects must be kept confidential unless it pertains to:
- illegal activities
- disclosure is required by law
- the client or prospect gives permission for the information to be disclosed
- when cooperating with a CFA Institute Professional Conduct Program (PCP) investigation
If illegal activities by a client are involved, members may have an obligation to report the activities to authorities. The confidentiality Standard extends to former clients as well.
IV(A): Loyalty
In matters related to their employment, Members and Candidates must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer.
Members must not engage in any activities which would injure the firm, deprive it of profit, or deprive it of the advantage of employees’ skills and abilities. Always place client interests above interests of employer.
IV(B): Additional Compensation Arrangements
No gifts, benefits, compensation, or consideration are to be accepted which may create a conflict of interest with the employer’s interest unless written consent is received from all parties.
Note: Written consent from a member’s employer includes email communication.
IV(C): Responsibilities of Supervisors
All Members and Candidates must make reasonable efforts to ensure that anyone subject to their supervision or authority complies with applicable laws, rules, regulations, and the Code and Standards.
Members must take steps to prevent employees from violating laws, rules, regulations, or the Code and Standards and make reasonable efforts to detect violations.
V(A): Diligence and Reasonable Basis
When analyzing investments, making recommendations, and taking investment actions use diligence, independence, and thoroughness.
Investment analysis, recommendations, and actions should have a reasonable and adequate basis, supported by research and investigation.
Using secondary or third-party research: See that the research is sound.
Group research and decision making: Even if a Member does not agree with the independent and objective view of the group, he does not necessarily have to decline to be identified with the report, as long as there is a reasonable and adequate basis.
