CFA® Level I Ethics Guide
Knowledge of the Law
Independence and Objectivity
2. Integrity of Capital Markets
Material Nonpublic Information
3. Duties to Clients
Loyalty, Prudence, and Care
- Make a reasonable inquiry into a client’s or prospective client’s investment experience, risk and return objectives, and financial constraints before making any investment recommendation or taking investment action and must reassess and update this information regularly.
- Determine that an investment is suitable to the client’s financial situation and consistent with the client’s written objectives, mandates, and constraints before making an investment recommendation or taking investment action.
- Judge the suitability of investments in the context of the client’s total portfolio.
Preservation of Confidentiality
Members and Candidates must keep information about current, former, and prospective clients confidential unless:
- The report concerns illegal activities on the part of the client or potential client,
Disclosure is required by law, or
- The client or prospective client permits disclosure of the information.
4. Duties to Employers
Additional Compensation Arrangements
Responsibilities of Supervisors
5. Investment Analysis, Recommendations, and Actions
Diligence and Reasonable Basis
Members and Candidates must:
- Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions.
- Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action.
Communication with Clients and Prospective Clients
Members and Candidates must:
- Disclose to clients and prospective clients the basic format and general principles of the investment processes they use to analyze investments, select securities, and construct portfolios and must promptly disclose any changes that might materially affect those processes.
- Disclose to clients and prospective clients significant limitations and risks associated with the investment process.
- Use reasonable judgment in identifying which factors are essential to their investment analyses, recommendations, or actions and include those factors in communications with clients and prospective clients.
- Distinguish between fact and opinion in the presentation of investment analysis and recommendations.
6. Conflicts of Interest
Disclosure of Conflicts
Priority of Transactions
7. Responsibilities as a CFA Institute Member or CFA Candidate
Conduct as Participants in CFA Institute Programs
Reference to CFA Institute, the CFA Designation, and the CFA Program
Common CFA Ethics FAQs
How to differentiate between the seven standards of conduct?
What are the global investment performance standards? (GIPS)
What are the six major components of the CFA code of ethics?
Members of CFA Institute and candidates for the CFA
- Act with integrity, competence, diligence, and respect and ethically with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and others in the global capital markets.
- Place the integrity of the investment profession and the interests of clients above their interests.
- Use reasonable care, exercise independent professional judgment when conducting investment analysis, make investment recommendations, take investment actions, and engage in other professional activities.
- Practice and encourage others to practice professionally and ethically that will reflect credit on themselves and the profession.
- Promote the integrity and viability of the global capital markets for the ultimate benefit of society.
- Maintain and improve their professional competence and strive to maintain and enhance the competence of other investment professionals.
How can students think outside the box to prepare for the subtle nature of ethics questions on exams?
- The Code of Ethics and the Standards of Professional Conduct are two very distinct things, keep them separate in your mind.
- It is not enough to know that it sounds wrong; it probably is. Memorize the Code of Ethics and the Standards of Conduct, as questions can focus on very subtle distinctions.
- Every time you study for the exam, end with five ethics questions.
- Not everything presented in the exam will be a violation.
What are the helpful resources available to prepare for the CFA Level 1 exam?
While third-party exam prep providers are helpful, this is the one area to spend time memorizing exactly how the CFA institute phrases things.
The Standards of Practice Handbook exam is very good prep.
How is this portion of the test weighted?
CFA Level 1 Ethics Tips
Be sure to study.
Do as many practice problems as you can find
Read the question carefully.
Relationships are often the key.
Timing can be everything.
Why it's so essential to ace the Ethics section of the exam.
Of course, it’s essential to ace the entire exam, but here are specific reasons to know Ethics without any doubts:
- It’s a large portion of the exam
- It’s not that difficult to ace it if you have studied and practiced. That is, there is potentially a more significant return on your study investment.
- If you are a borderline pass, your Ethics score can nudge you into the passing zone.
- In sum, it’s low-hanging fruit – and there are lots to be had – if you have prepared.
Ethics is a significant part of the CFA exam and is taken very seriously by the CFA Institute, and yet it is an area often neglected by candidates. Many candidates believe they are ethical, and therefore reason there is little use in committing much study time to the topic when other “tougher” sections loom large. Many also believe that Ethics is very intuitive and straightforward, but again, CFA exam questions on the subject are subtle, sophisticated, and very CFA-specific. For the well-prepared student, the exam’s Ethics portion provides great study time value with significant payback opportunities at test time.
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