Describe the need for ethics in the investment industry
Ethics ensures people behave for the benefit of all, building public trust in financial markets and investment professionals.
Identify positive and negative behavioural indicators
Positive: strong corporate ethics, senior role models, ethical culture. Negative: unethical behaviour from environment, pressure, personality, conflicts of interest, or lack of rigour.
Identify the ethical obligations to clients, prospective clients, employers, and co-workers
Obligations include: (1) act with loyalty, care, and judgment; (2) deal fairly and objectively; (3) provide suitable recommendations; (4) provide fair, accurate, and complete information; (5) preserve client confidentiality unless disclosure is required by law.
Critically evaluate the outcomes which may result from behaving unethically
Industry: loss of trust, stricter regulation, higher costs. Advisers: disciplinary action, loss of job. Firms: reputational damage, prosecution, fines. Consumers: poor advice, financial loss.
Critically evaluate the outcomes which may result from limiting behaviour to compliance within the rules
Outcomes: less trust in the industry, exploitation of loopholes, possible unfair treatment of clients, and reduced investor confidence.
Identify the elements of the CFA Code of Ethics and Standards of Professional Conduct
The Code has six elements: (1) Act with integrity, competence, diligence, respect, and ethics; (2) Place client interests above your own; (3) Use care and independent judgment; (4) Practice professionally and ethically; (5) Promote integrity of markets; (6) Maintain and improve competence.
Explain the professional principles and values on which the CFA Code of Ethics and Standards of Professional Conduct are based
Principles include integrity, transparency, placing clients’ interests first, professionalism, competence, diligence, objectivity, avoiding conflicts of interest, and promoting trust in capital markets.
Apply the CFA Code of Ethics and Standards of Professional Conduct to a range of ethical dilemmas
Example: Misleading clients about returns = violation of duties to clients. Insider trading = violation of integrity of capital markets. Accepting gifts from clients that impair objectivity = violation of independence and objectivity. Using plagiarism in reports = violation of professionalism.
