The CFA® Ethics 2023 curriculum covers the CFA Institute Code of Ethics and Standards of Professional Conduct and their application to real-world ethical situations faced by professionals. Ethics is the most heavily weighted topic on the CFA Level 1 exam and remains critical through Levels 2 and 3.
Even though there are no formulae to memorize in the Ethics readings, it’s consistently regarded as one of the more difficult CFA topics due to the subjectivity of the questions and the complexity of the material. 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.
What to Expect in CFA Level 1 Ethics?
CFA Level 1 Ethics is the most heavily weighted topic on the exam with a weighting of 15-20%. The topic introduces the CFAI’s six Codes of Ethics and seven Standards of Professional Conduct (the Code and Standards). Candidates are expected to use these Codes and Standards as a framework for ethical decision-making throughout their financial careers. While there are no formulae to memorize, Ethics is commonly regarded as one of the most challenging CFA Level 1 topics due to the breadth of material and its relatively subjective nature. The topic material closes with a short introduction to Global Investment Standards (GIPS); some of this material is optional.
The CFA Ethics topic has an exam weighting of 15-20%, meaning that approximately 27-36 of the 180 CFA Level 1 exam questions focus on this topic.
|Topic Weight||No. of Learning modules||No. of Formulas||No. of Questions|
Level 1 Ethics 2023 Syllabus, Readings, and Changes
The 2023 CFA Level 1 Ethics syllabus spans 5 learning modules and contains 21 LOS. The CFA Level 1 exam includes 73 total learning modules for 2023. Five of these learning modules center on Ethics (7% of the total curriculum ).
|No. of Learning Modules: 5||No. of LOS: 21|
Introduces the CFAI® Code of Ethics and Standards of Professional Conduct and how to apply such standards to particular situations. Concludes with an overview of the Global Investment Performance Standards (GIPS).
The weighting of the Ethics section stayed constant from 2018 to 2020. Since 2021, the exam weight has fluctuated between 15-20%. Please note that there are no changes in the CFA Level 1 Ethics curriculum.
Ethics and Trust in the Investment Profession
Financial analysis is about more than formulae and forecasting. Financial markets and businesses could not function without trust in individuals and institutions. This reading introduces the concept of investing as a profession and the importance of ethical behavior in investing. Candidates will learn to create trust through maintaining standards, abiding by codes, and applying an ethical framework to their daily professional decisions.
Code of Ethics and Standards of Professional Conduct
Candidates often struggle with Ethics because it relies more on subjectivity and intuition than formulae. However, the Standards of Practice Handbook makes the theoretical side of Ethics more concrete by providing guidance on common ethical dilemmas that investment professionals face on a daily basis.
- This reading describes the importance of building a positive community of reputable investment professionals who strive to meet and surpass industry expectations.
- Candidates will learn that Ethics is not just about one individual’s good choices but the aggregate of ethical decisions made by a community of members.
“Through members’ and candidates’ adherence to these principles as a whole, the integrity of and trust in the capital markets are improved.”
Guidance for Standards I–VII
Candidates are expected to understand how to apply the Code of Ethics and Standards of Professional Conduct to real-world situations that they may face as professional financial analysts.
Guidance for Standards is broken down into seven general sections, each with its own subcategories:
- Integrity of Capital Markets
- Duties to Clients
- Duties to Employers
- Investment Analysis, Recommendations, and Actions
- Conflict of Interest
- Responsibilities as a CFA Institute Member or CFA Candidate
The readings will instruct students on procedures designed to prevent violations and conduct themselves appropriately in situations involving their professional integrity.
Global Investment Performance Standards (GIPS)
The Global Investment Performance Standards are voluntary ethical guidelines applied to investment performance reporting and designed by the CFA Institute in partnership with GIPS Standards sponsors and industry experts. Investment firms and asset owners abide by GIPS as a commitment to transparency for investors.
- This reading provides an introduction to GIPS standards and explains the reasoning behind their creation.
- Candidates will become familiar with the benefits of industry-wide standards and their elevation of the community as a whole.
- This reading provides candidates with the opportunity to exercise their newly acquired ethics thinking.
- Candidates will apply their knowledge of the CFA Institute Code of Ethics and Standards of Professional Conduct to a series of real-world scenarios. After selecting an answer, the reading presents the correct response and the rationale behind it.
CFA Ethics Level 1 Sample Questions and Answers
The sample questions are typical of the probing multiple-choice questions on the L1 exam. During the exam, you have about 90 seconds to read and answer each question, carefully designed to test knowledge from the CFA Curriculum. UWorld’s question bank is built to expose you to exam-like questions and illustrate and explain the concepts tested thoroughly.
If a professional organization has standards of conduct in addition to its code of ethics, the purpose of the standards is most likely to describe:
Zhao Fen, CFA, is an independent investor. She holds a large position of Formula Industries, a lightly traded stock with low liquidity, in one of her two personal accounts. If Zhao wishes to exit the position, which of the following would most likely violate the Standards?
- Using an intermediary to sell the position outside of the market to avoid price impacts.
- Selling her holdings as one position, which would likely cause a large drop in the price.
- Trading the stock between personal accounts to attract interest from other market participants.
Letitia Armando, CFA, works for a global investment bank. She is transferred to an office in an emerging market country. The local office staff suggest that Armando pay an unofficial “administrative fee” to local regulatory officials in return for ensuring that the bank receives approval on new public offerings. Armando researches local law and finds that it does not prohibit such payments and that, in fact, it is the accepted local practice. If Armando pays the officials, will she most likely violate Standard I: Professionalism?
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. Be sure you understand what is being asked
Most Ethics questions test the Standards by presenting a scenario and asking candidates to identify a violation, explain how an action is a violation, or identify an appropriate course of action.
3. 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.
4. Understand the differences between the seven Professional Conduct Standards and the six Codes of Ethics
The curriculum defines a code of ethics as a general guideline for behavior, while standards of conduct are more specific recommendations of what constitutes “minimally acceptable behavior.”
You must distinguish between the CFA Code of Ethics and the Standards. The following are the six Codes of Ethics:
- Act with integrity and in an ethical manner
- Place the profession and interest of clients over personal interest.
- Conduct all professional activities (such as investment analysis, recommendations, etc.) with reasonable care and independent judgment.
- Work in a professional manner and encourage others to do so.
- Promote the integrity of capital markets and support the rules governing the markets
- Maintain and improve professional competence
Here are the seven primary Professional Conduct Standards (there are 22 subsections in total, which are not listed)
- Professionalism (A)-(D)
- Integrity of capital markets (A)-(B)
- Duties to clients (A)-(E)
- Duties to employers (A)-(C)
- Investment analysis, recommendations, and actions (A)-(C)
- Conflicts of interest (A)-(C)
- Responsibilities as a CFA Institute member or CFA candidate (A)-(B)
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 of the Standards. Instead, you should figure out how the reasoning works, such as what is allowed and what is not allowed.
6. Don't rely on “being ethical”
Many candidates make the mistake of thinking that because they are ethical and behave ethically, they do not need to study. Or that Ethics is the least important material to invest time in; instead, they can skim the learning modules right before the exam. Remember that CFA Institute is not testing you but your ability to identify ethical standards, apply them appropriately, and avoid violating them. You must be familiar with the Standards and their applications in the investment profession. And keep in mind that Ethics is the largest single topic area on the L1 exam.
7. 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.
8. 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.
Frequently Asked Questions
Once you’ve mastered the Standards, discussing Ethics is a natural next step. Apply the seven Standards to 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 Chapter (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.
Remember that the exam is not testing your personal behavior but your ability to apply the Standards as a member of the investment profession. The ethical decisions that you make as a Charterholder may not be so clear and easy.