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Ethics Application

Ethics

Professionalism

Learning Outcome Statement:

evaluate practices, policies, and conduct relative to the CFA Institute Code of Ethics and Standards of Professional Conduct; explain how the practices, policies, and conduct do or do not violate the CFA Institute Code of Ethics and Standards of Professional Conduct

Summary:

This LOS focuses on evaluating and explaining the alignment or misalignment of various professional practices, policies, and conducts with the CFA Institute Code of Ethics and Standards of Professional Conduct. It includes analyzing real-world scenarios to determine compliance with ethical standards in areas such as knowledge of the law, independence and objectivity, misrepresentation, misconduct, and competence.

Key Concepts:

Knowledge of the Law

Members and candidates must understand and comply with all applicable laws and regulations, prioritizing stricter laws when conflicts arise. They must avoid participating in or assisting with violations of these laws.

Independence and Objectivity

Professionals must maintain independence and objectivity in their professional activities. They should not accept gifts or benefits that could compromise their objectivity.

Misrepresentation

Members and candidates must not knowingly make misrepresentations related to investment analysis, recommendations, or other professional activities.

Misconduct

Engaging in any professional conduct involving dishonesty, fraud, or deceit, or any act that reflects adversely on their professional reputation, integrity, or competence is prohibited.

Competence

Professionals must act with and maintain the necessary competence to fulfill their professional responsibilities, continually developing their skills and knowledge.

Integrity of Capital Markets

Learning Outcome Statement:

evaluate practices, policies, and conduct relative to the CFA Institute Code of Ethics and Standards of Professional Conduct; explain how the practices, policies, and conduct do or do not violate the CFA Institute Code of Ethics and Standards of Professional Conduct

Summary:

This LOS focuses on evaluating various practices, policies, and conduct in the context of the CFA Institute Code of Ethics and Standards of Professional Conduct. It includes scenarios involving material nonpublic information and market manipulation, illustrating how members and candidates should not act on or cause others to act on nonpublic information and must avoid practices that mislead market participants or manipulate market prices.

Key Concepts:

Material Nonpublic Information

This refers to any information that a reasonable investor would consider important in making an investment decision and that has not been publicly disclosed. Members and candidates possessing such information are prohibited from trading or tipping others to trade based on this information.

Market Manipulation

This involves engaging in practices that distort prices or artificially inflate trading volumes to mislead market participants. Members and candidates are prohibited from such practices, which are intended to mislead or deceive other market participants.

Selective Disclosure

Occurs when material nonpublic information is disclosed to a select group rather than the public, potentially leading to unfair advantages. Members and candidates must ensure that all material information is disseminated fairly and broadly to the public.

Duty of Loyalty, Prudence, and Care

Members and candidates have a duty to act with loyalty, prudence, and care, prioritizing their clients' interests above their own or their employer's, and ensuring that their actions adhere to professional standards and legal requirements.

Duties to Clients

Learning Outcome Statement:

evaluate practices, policies, and conduct relative to the CFA Institute Code of Ethics and Standards of Professional Conduct; explain how the practices, policies, and conduct do or do not violate the CFA Institute Code of Ethics and Standards of Professional Conduct

Summary:

The 'Duties to Clients' section of the CFA curriculum focuses on the ethical responsibilities of members and candidates towards their clients. It covers various standards including Loyalty, Prudence, and Care, Fair Dealing, Suitability, Performance Presentation, and Preservation of Confidentiality. Each standard outlines specific behaviors and practices that are expected to ensure fair and ethical treatment of clients.

Key Concepts:

Loyalty, Prudence, and Care

Members and candidates are required to act with loyalty, reasonable care, and prudent judgment for the benefit of their clients, placing clients' interests before their own or their employer's.

Fair Dealing

All clients must be treated fairly and objectively, especially when providing investment analysis, making investment recommendations, or taking investment actions.

Suitability

Investment actions or recommendations must be suitable to the client's financial situation and consistent with their objectives, mandates, and constraints.

Performance Presentation

Investment performance information must be presented in a manner that is fair, accurate, and complete to avoid misleading clients.

Preservation of Confidentiality

Confidential information about clients must be protected unless disclosure is required by law, the information pertains to illegal activities, or the client permits disclosure.

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