CFA Level 1, Section 1: Ethics &
Standards
What are the 6 components of the CFA Code of Ethics? - ANS Always Pee Using Patience
Precision and Manners
ACT with integrity, competence, diligence, respect, and in an ethical manner with the public,
clients, prospective clients, employers, employees, colleagues in the investment profession, and
other participants in the global capital markets.
PLACE the integrity of the investment profession and the interests of clients above their own
personal interests.
USE reasonable care and exercise independent professional judgment when conducting
investment analysis, making investment recommendations, taking investment actions, and
engaging in other professional activities.
PRACTICE and encourage others to practice in a professional and ethical manner 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 improve the
competence of other investment professionals.
What are the various sections for Standards of Professional Conduct? - ANS KIDDICARE
There are 7:
I. Professionalism
II. Integrity of Capital Markets
III. Duties to Clients and Prospective Clients
IV. Duties to Employers
V. Investment Analysis, Recommendations, and Action
VI. Conflicts of Interest
VII. Responsibilities as a CFA Institute Member or CFA Candidate
What is Standard I? - ANS Professionalism
What are the subsections of Standard I - ANS KIMM
There are 4:
I-A: Knowledge of the Law
I-B: Independence and Objectivity
, I-C: Misrepresentation
I-D: Misconduct
What is Standard I-A? - ANS Members and Candidates must understand and comply with all
applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and
Standards of Professional Conduct) of any government, regulatory organization, licensing
agency, or professional association governing their professional activities. In the event of
conflict, Members and Candidates must not knowingly participate or assist in and must
disassociate from any violation of such laws, rules, or regulations.
"Knowledge of the Law: covers laws, rules and regulations"
What are some categories of information that are often misrepresented? - ANS •Average year
of experience of investment personnel- someone just left and his info needs to taken out of the
average calculation
•Professional services - For example, small financial services firms tend to specialize in a given
area, such as 401(k) planning or insurance products or tax preparation. A CFA member in
charge of such a firm cannot hold himself out to be a comprehensive provider of all these
financial needs.
•Professional credentials - A recent college graduate and CFA candidate passes one of the
FINRA licensing exams and then holds herself out as a licensed investment advisor and
portfolio management expert, printing these titles on marketing brochures.
•Expected return on an investment - A representative from a bank makes a presentation on a
mutual fund that specializes in real estate, saying the following: "You want to allocate a portion
of your diversified portfolio to real estate. This fund is up 98% over the last four years, and when
you add that 98% gain to your account for the next four years, it will offset the stagnant cash
and bond investments and allow you to reach your goals."
•Expected risk on an investment - Derivative securities of fixed income products are sometimes
described as "government guaranteed" when in fact the interest portion fluctuates and will
decline in periods of high interest rates. Using the idea of a guarantee masks the true risk of the
security.
What is Standard II? - ANS Integrity of Capital Markets
What are the subsections of Standard II - ANS II-A: Material Nonpublic Information
II-B: Market Manipulation
What are the minimum elements of a corporate firewall in this compliance context? - ANS
•Segregation of Personnel - Someone involved with investment banking should not be doing
research and trading, and vice versa.
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