CFA® Ethical and Professional Standards

Summary, Syllabus, and Topics (L1, L2, L3)

The CFA® Ethics curriculum covers the CFA Institute Code of Ethics and Standards of Professional Conduct and their application to real-world ethical situations faced by professionals. The CFA Institute designed these Codes and Standards in the 1960s in order to “promote the integrity of the CFA Institute members and serve as a model for measuring the Ethics of investment professionals globally.”

Ethics is the most heavily weighted topic on the CFA Level 1 exam and remains critical through Levels 2 and 3. Candidates may utter a sigh of relief upon learning that there are no formulae to memorize in their Ethics readings, but don’t be fooled. Ethics is consistently regarded as one of the more difficult CFA topics due to the subjectivity of the questions and the complexity of the material.

Ethics questions are typically linked to the Code of Ethics and Seven Standards of Professional Conduct. Candidates will be confronted with various situations commonly faced by financial professionals and then asked to determine the correct response, or whether an ethical violation occurred.

Expect to read and reread. Candidates will have to spend a lot of time diagnosing violations and exposing themselves to an abundance of examples before they begin to train their intuition.

Aside from its importance throughout each level of the CFA, Ethics is unique for the ‘Ethics adjustment’ implemented by the CFA Institute. If a candidate is on the edge of failing, a strong Ethics score may warrant a pass.

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Study Tips for CFA Ethics

1. Read the question carefully and highlight key details

Pay close attention to the anecdote in the question. Frequently, a candidate makes mistakes by forgetting key phrases such as 'always,' 'never,' or 'didn't. You'll want to return to the “story” after reading each question and note keywords and phrases.

2. Make sure you read the Ethics section several times

Ethics questions are nuanced and confusing, and settling on the correct answer takes time. The good news is that once you've done so, you'll be rewarded in Levels 2 and 3. Much of the Ethics content is the same at all levels. It will take some repetition to get you to think about it the right way. Instead of cramming it all in at the end, try doing some questions every day for a few weeks.

3. Understand the differences between the seven Professional Conduct Standards and the six Codes of Ethics

Here are the seven primary Professional Conduct Standards (there are 22 subsections in total, which are not listed)

  1. Professionalism (A)-(D)
  2. Integrity of capital markets (A)-(B)
  3. Duties to clients (A)-(E)
  4. Duties to employers (A)-(C)
  5. Investment analysis, recommendations, and actions (A)-(C)
  6. Conflicts of interest (A)-(C)
  7. Responsibilities as a CFA Institute member or CFA candidate (A)-(B)

You must distinguish between the CFA Code of Ethics and the Standards. The following are the six Codes of Ethics

  1. Act with integrity and in an ethical manner
  2. Place the profession and interest of clients over personal interest.
  3. Conduct all professional activities (such as investment analysis, recommendations, etc.) with reasonable care and independent judgment.
  4. Work in a professional manner and encourage others to do so.
  5. Promote the integrity of capital markets and support the rules governing the markets
  6. Maintain and improve professional competence

5. Don't rely on memorization alone

Because some industry-specific scenarios (such as the Standards and Codes) are challenging to generalize, CFA Level 1 Ethics requires a little more knowledge. But, you don't need to memorize things like the numbering. Instead of memorizing, you should figure out how the reasoning works, such as what is allowed and what is not allowed.

6. It's a Must to Do a Lot of Ethics Practice Questions

Answering Ethics questions requires familiarity with both the question style and the source material — knowing what keywords to avoid, predicting typical pitfalls, and sifting out extraneous data.

  • Practicing a large number of questions ahead of time will help you avoid any unpleasant shocks on the exam.
  • Read all of the Ethics practice questions and answers in the CFA curriculum. Learn how rules are interpreted and applied.
  • Complete all the 'blue box' questions before moving on to the End of Chapter (EOC) questions.
  • For further questions, check out the CFA Institute's online Learning Ecosystem and Standards of Practice manual.
  • Then, if you have time, review them again before looking at UWorld’s Qbank.
  • It is better to comprehend the theory, return to the CFA curriculum notes and revisit relevant sections to reinforce your CFA Ethics knowledge.
  • Also, complete as many Ethics questions as possible, then read the explanation solutions for correct and incorrect answers. Slowly but steadily, you'll get the hang of it, honing your "ethical intuition" along the way.

7. If you have time, make summary notes or flashcards

This helps you save time throughout the practice questions phase and when swiftly revising Ethics subjects. It also saves a lot of time for Levels 2 and 3, when you should be focusing on more complex topics.

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Once you’ve mastered the Standards, discussing Ethics is a natural next step. All you have to do is set the seven Standards over any problem and see if one of them is being broken. When you look at the examples, you will understand this recommendation.

Do the CFA’s End Of Curriculum (EOC) questions along with any questions in the EcoSystem. Beyond that, we highly recommend going through UWorld’s Learning QBank which is known for intuitively explaining Ethics to raise test scores. Find out more here about UWorld’s CFA prep platform.

Whatever the level of the CFA program, Ethics is a difficult subject. It should not be mistaken with common sense or being a “good” person, as there are numerous particular instances in finance that necessitate a much more in-depth understanding.

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