Lecture notes
CFA Level 1-Ethics notes
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- CFA - Chartered Financial Analyst
CFA Level 1-Ethics notes
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Ethics and Professional StandardsEthics and trust
Set of moral principles and rules of conduct that guide behaviour
Principles: Honesty, transparency, fairness, diligence and respect for rights of others
Written rules/principles are known as code of ethics benchmark for minimum acceptable
behaviours. This is the publicly communicated shared principles and expected behaviours of a
profession’s members
The minimum acceptable behaviour is known as standards of conduct
Professionalism building trust
How to build trust:
1. Professions normalize practitioner behaviour
2. Provide a service to society to support economic activity
3. Focused on fiduciary duty and client focused
4. High entry standards
5. Body of expert knowledge
6. Encourage continuing education
7. Monitor professional conduct
8. Respectful to each other
9. Recognised by oversight bodies
10. Engage members
Ethical decision framework
1. Identify: Facts, stakeholders, duties owed, ethical principles and conflict of interest
2. Consider: Situational influences, behavioural biases, guidance and alternative actions
3. Decide and act
4. Reflect: Was the outcome anticipate- why or why not
Code of ethics and standards of professional conduct
Recent updates to the eleventh edition
CFA mission: to lead the investment profession globally by promoting the highest standards of
ethics, education, and professional excellence for the ultimate benefit of society.
Code of ethics principle: Promote the integrity and viability of the global capital markets for the
ultimate benefit of society.
Responsibility of supervisors new standard: 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
Communication extra standard: Disclose to clients and prospective clients significant limitations
and risks associated with the investment process.
Code of Ethics- place the integrity of the investment profession and the interests of clients
above their own personal interest
Code of ethics
1. Act with integrity, competence, diligence, and 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.
, 2. Place the integrity of the investment profession and the interests of clients above their own
personal interests.
3. Use reasonable care and exercise independent professional judgment when conducting
investment analysis, making investment recommendations, taking investment actions, and
engaging in other professional activities.
4. Practice and encourage others to practice in a professional and ethical manner that will reflect
credit on themselves and the profession.
5. Promote the integrity and viability of the global capital markets for the ultimate benefit of
society.
6. Maintain and improve their professional competence and strive to maintain and improve the
competence of other investment professionals.
Standards of professional conduct
I: Professionalism:
a) Knowledge of law- Comply. If don’t have law use code and standards.
b) Independence and objectivity- reasonable care and judgement. Focus on gifts.
c) Misrepresentation- Knowingly impact investment practice, performance, social media,
plagiarism and work for employer.
d) Misconduct (Fraud)- Don’t do anything stupid, fraud, dishonestly, deceit commit any act
that reflects adversely on their professional reputation, integrity, or competence. Use
code of ethics, list the potential violations and check employees’ references
II: Integrity of capital markets:
a) Material Non-public info- Do not act. Make the information public officially.
b) Market manipulation- Don’t distort prices or artificially inflate trading volume with
intent to mislead market participants.
III: Duties to clients:
a) Loyalty, prudence and care- prudent judgement and place client at heart
b) Fair dealing- Fairly and objectively. Treat family accounts the same if part of client base
c) Suitability- Objectives and total portfolio
d) Performance- Fair reflection
e) Preservation of confidentiality- Unless required by law, illegal or approved by client
IV: Duties to employer:
a) Loyalty- Act to best ability and not harm employer
b) Additional compensations- Don’t accept gifts that might cause conflict of interest.
Written consent required.
c) Responsibility of supervisors- Ensure everyone complies with law, rules, reg and code
and standards. Reasonable efforts
V: Investment analysis, Recommendations, and Actions:
a) Diligence- Supported by analysis
b) Communication with clients- principles of investment, limitations/risk, reasonable
judgement in identification of important factors and distinguish between fact/opinion
c) Record retention
VI: Conflict of interest:
a) Disclosure- Full and fair disclosure
b) Priority of transactions- Client and employers over myself
c) Referral fees- Must be disclosed
VII: CFA members:
a) Conduct as participants: Do not do anything silly
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