14.2 CFA Institute Code of Ethics and Standards of Professional Conduct

The CFA Institute Code of Ethics and Standards set the ethical bar for investment pros worldwide. They guide professionals to put clients first, act with integrity, and navigate tricky situations. These rules are crucial for maintaining trust in the financial world.

Following these standards isn't just about doing the right thing—it's smart business. It helps avoid legal trouble, keeps clients happy, and builds a solid reputation. Plus, it creates a fair playing field for everyone in the industry.

CFA Institute Code of Ethics and Standards

Ethical Principles and Guidance

Top images from around the web for Ethical Principles and Guidance

• 

  Ethical Principles - Free of Charge Creative Commons Highway Sign image View original

  Is this image relevant?

• 

  Glossary of ethical principles, terms and values (L. Hammo… | Flickr View original

  Is this image relevant?

• 

  Code Of Ethics - Legal image View original

  Is this image relevant?

• 

  Ethical Principles - Free of Charge Creative Commons Highway Sign image View original

  Is this image relevant?

• 

  Glossary of ethical principles, terms and values (L. Hammo… | Flickr View original

  Is this image relevant?

1 of 3

Top images from around the web for Ethical Principles and Guidance

• 

  Ethical Principles - Free of Charge Creative Commons Highway Sign image View original

  Is this image relevant?

• 

  Glossary of ethical principles, terms and values (L. Hammo… | Flickr View original

  Is this image relevant?

• 

  Code Of Ethics - Legal image View original

  Is this image relevant?

• 

  Ethical Principles - Free of Charge Creative Commons Highway Sign image View original

  Is this image relevant?

• 

  Glossary of ethical principles, terms and values (L. Hammo… | Flickr View original

  Is this image relevant?

1 of 3

• The CFA Institute Code of Ethics and Standards of Professional Conduct (Code and Standards) serve as the ethical benchmark for investment professionals globally, irrespective of job function, cultural differences, or local laws
• The Code of Ethics stipulates that members and CFA charterholders must prioritize the integrity of the profession and the interests of clients above their own interests
• The Code of Ethics encompasses general principles of conduct such as acting with integrity, competence, diligence, and respect
• The Standards of Professional Conduct offer specific guidance for navigating ethical dilemmas across seven main categories:
  • Professionalism
  • Integrity of Capital Markets
  • Duties to Clients
  • Duties to Employers
  • Investment Analysis and Recommendations
  • Conflicts of Interest
  • Responsibilities as a CFA Institute Member or CFA Candidate

Key Standards and Examples

• Key Standards include Knowledge of the Law, Misrepresentation, Loyalty Prudence and Care, Fair Dealing, Preservation of Confidentiality, and Disclosure of Conflicts
• Knowledge of the Law requires investment professionals to understand and comply with all applicable laws, rules, and regulations (securities regulations, anti-money laundering laws)
• Misrepresentation prohibits investment professionals from making false or misleading statements about investment services, performance, or credentials (exaggerating investment returns, misrepresenting qualifications)
• Loyalty Prudence and Care obligates investment professionals to act in the best interest of their clients and to provide prudent investment advice (recommending suitable investments, providing fair and objective advice)
• Fair Dealing ensures that investment professionals treat all clients fairly and objectively, without discriminating or favoring certain clients over others (allocating investment opportunities equitably, avoiding preferential treatment)

Applying CFA Standards to Practice

Recognizing and Navigating Ethical Dilemmas

• Investment professionals must possess the ability to identify situations that could lead to ethical dilemmas and apply the Code and Standards to determine the most appropriate course of action
• Common ethical dilemmas involve conflicts of interest between an investment professional's personal and professional relationships, such as:
  • Personal trading (trading in securities that are also recommended to clients)
  • Gifts and entertainment (accepting lavish gifts or entertainment from clients or service providers)
  • Outside business activities (engaging in external directorships or consulting arrangements)
• Investment professionals must also navigate ethical issues related to preserving the integrity of capital markets, such as:
  • Detecting and preventing market manipulation (spreading false rumors to influence security prices)
  • Insider trading (using material nonpublic information for personal gain)
  • Front running client trades (trading ahead of client orders to benefit from price movements)

Upholding Duties to Clients and Employers

• Other ethical challenges relate to fair dealing with clients and prospects, such as:
  • Ensuring investment suitability (recommending investments that align with a client's objectives, constraints, and risk tolerance)
  • Making adequate disclosures (providing clear and complete information about fees, risks, and conflicts of interest)
  • Avoiding misrepresentation of products or services (accurately describing investment strategies, performance, and credentials)
• Upholding duties to employers requires investment professionals to:
  • Act with loyalty, prudence and care (placing the employer's interests above personal interests)
  • Maintain appropriate confidentiality of sensitive information (protecting proprietary investment research and client data)
  • Disclose and manage conflicts of interest (obtaining employer approval for outside business activities or board memberships)

Consequences of Violating CFA Standards

Professional and Legal Ramifications

• Violations of the Code and Standards can lead to severe professional and legal consequences for investment professionals and their employers
• The CFA Institute Professional Conduct Program investigates potential violations of the Code and Standards by CFA Institute members and charterholders
• Sanctions imposed by the CFA Institute may include:
  • Private censure (confidential reprimand)
  • Public censure (public acknowledgment of the violation)
  • Suspension of membership and use of the CFA designation
  • Revocation of the CFA charter
• Violations of the Code and Standards may also result in:
  • Job loss and difficulty securing future employment in the investment industry
  • Reputational damage to the individual and their employer
  • Fines and penalties imposed by regulatory authorities
  • Criminal charges for severe misconduct (insider trading, fraud)

Reporting Violations and Ethical Culture

• Investment professionals have a duty to report potential violations of the Code and Standards to their employer's compliance department and/or the CFA Institute Professional Conduct Program
• Firms with a strong ethical culture that adhere to the Code and Standards are more likely to:
  • Avoid costly regulatory investigations and enforcement actions
  • Minimize the risk of litigation and negative publicity
  • Attract and retain clients who value ethical conduct and trustworthiness
  • Foster a positive work environment that encourages employee loyalty and productivity

Ethical Standards in Investment

Maintaining Credibility and Investor Trust

• Ethical conduct is essential to maintaining the credibility and integrity of the global investment management profession
• Widespread misconduct can erode investor trust and confidence in the fairness of financial markets, leading to reduced participation and liquidity
• Investment professionals serve as trusted advisors and fiduciaries to their clients, who expect them to always prioritize their interests and act with prudence, loyalty, and care
• Upholding the Code and Standards reinforces a firm's reputation and brand, making it more likely to attract and retain clients who value a demonstrated track record of ethical conduct and robust compliance controls

Promoting Fairness and Long-Term Performance

• Adherence to the Code and Standards promotes fair competition and a level playing field in the investment industry by holding all investment professionals to the same high level of ethical conduct, regardless of their specific job function or local laws and regulations
• Embracing the Code and Standards can also enhance long-term investment performance by:
  • Helping firms avoid the costly distractions and reputational damage caused by regulatory investigations, fines, and litigation
  • Encouraging a focus on sustainable, long-term value creation rather than short-term gains through unethical practices
  • Attracting and retaining high-quality employees who are committed to ethical behavior and professional excellence
• By prioritizing ethics and integrity, investment professionals can help build a more trustworthy, efficient, and resilient global financial system that benefits all market participants