Ethics

Question 1

6 components of Code of Ethics

Answer 1

1. Act w/integrity, competence, diligence, and respect, and in an ethical manner w/everyone in the investment profession and other participants in the global capital markets
2. Place the integrity of investment profession and client interest above personal interests
3. Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations and engaging in other professional activities
4. Practice and encourage others to practice in a professional and ethical manner
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

Question 2

The Standards of Professional Conduct

Answer 2

1. Professionalism
2. Integrity of Capital Markets
3. Duties to Clients
4. Duties to Employers
5. Investment Analysis, Recommendations, and Actions
6. Conflicts of Interest
7. Responsbilities as a CFA Member or CFA Candidate

Question 3

Standards of Professional Conduct - (I) Professionalism

Answer 3

• Knowledge of the Law: All CFA candidates/members must understand and comply w/all applicable laws, rules and regulations of any government, regulatory organization, etc. In the event of conflict, CFA members/candidates must comply w/the more strict law, rule or regulation. Members must not knowlingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations
• Independence & Objectivity: CFA members/candidates must use reasonable care/judgment to achieve and maintain independence and objectivity in their professional activities. Candidates/members must not offer, solicit, or accept any gift/benefit/compensation/consideration that could compromise their independence and objectivity
• Misrepresentation: Members/Candidates must not knowingly make any misrepresentations relating to investment analysis/recommendations/actions
• Misconduct: Members/Candidates must not engage in any professional conduct involving dishonesty, fraud or deceit or commit any act that reflects adversely on their professional reputation, integrity or competence

Question 4

Standards of Professional Conduct - (II) Integrity of Capital Markets

Answer 4

• Material Nonpublic Information: Members/Candidates who possess material nonpublic info that could affect the value of an investment must not act on it or cause others to act on it
• Market manipulation: Members/Candidates must not engage in practices that would distort prices or artificially inflate trading volumes w/the intent to mislead market participants (in other words, don’t do shit that would manipulate the market)

Question 5

Standards of Professional Conduct - (III) Duties to Clients

Answer 5

• Loyalty, Prudence, Care: Members/candidates have a duty of loyalty to their clients and must act w/reasonable care and exercise prudent judgment. Members/candidates must act for the benefit of their clients and place their clients’ interests before their employer’s or their own interests
• Fair Dealing: You must deal fairly and objectively w/all clients when providing investment analysis, recommendations, taking investment action or engaging in other professionala activities
• Suitability:

1. When you are in an advisory relationship w/a client, you must:
   
   • Make a reasonable inquiry into a client’s/prospective client’s investment experience, risk and return objectives, financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this info regularly.
   • Judge the suitability of investments in the context of the client’s total portfolio
2. ​When you’re responsible for managing a portfolio to a specific mandate/strategy/style, you must make only investment recommendations or take investment actions that are consistent w/the stated objectives and constraints of the portfolio.

• Performance Presentation: When communicating investment performance info, you must take reasonable efforts to ensure that it’s fair, accurate, and complete.
• Preservation of Confidentiality: You must keep info about current, former, and prospective clients confidential unless:
  
  1. The info concerns illegal activities on part of the client or prospective client
  2. Disclosure is required by law, or
  3. The client/prospective client permits disclosure of the information

Question 6

Standards of Professional Conduct - (IV) Duties of Employers

Answer 6

• Loyalty: In matters related to your employment, you must act for the benefit of your employer and must not deprive your employer of the advantage of your skills and abilities, divulge confidential info, or otherwise cause harm to your employer
• Additional Compensation Arrangements: You must not accept gifts, benefits, compensation, or consideration that competes w/ or might reasonably be expected to create a conflict of interest w/your employer’s interests unless you obtain written consent from all parties involved.
• Responsbilities of Supervisors: You must make reasonable efforts to ensure that anyone subject to your supervision or authority complies w/applicable laws, rules, regulations and the Code and Standards

Question 7

Standards of Professional Conduct - (V) Investment Analysis, Recommendations, and Actions

Answer 7

• Diligence and Reasonable Basis: Members must…
  
  • Exercise diligence, independence, and thoroughness and analyzing investments, making investment recommendations, and taking investment actions
  • Have a reasonable and adequate basis supported by appropriate research and investigation, for any investment analysis, recommendation, or action
• Communication w/Clients and Prospective Clients: You must…
  
  • Disclose to clients and prospective clients the basic format and general principles of the investment processes they use to analyze investments, select securities, and construct portfolios and must promptly disclose any changes that might materially affect those processes
  • Disclose to clients and prospective clients significant limitations and risks associated w/the investment process
  • Use reasonable judgment in IDing which factors are important to their analyses, recommendations, or actions and include those factors in communications w/clients
  • Distinguish between fact and opinion in the presentation of investment analysis and recommendation
• Record Retention: You must develop and maintain appropriate records to support your investment analysis, recommendations, actions, and other investment-related communications w/clients and prospective clients

Question 8

Standards of Professional Conduct - (VI) Conflicts of Interest

Answer 8

• Disclosure of Conflicts: You must make full and fair disclosure of all matters that could reasonably be expected to impair your independence and objectivity or interfere w/respective duties to your clients/prospective clients and employer. You must ensure that such disclosures are prominent, are delivered w/plain language and communicate relevant info effectively.
• Priority of Transactions: Investment transactions for clients and employers must have priority over investment transactions in which you are the beneficial owner.
• Referral Fees: You must disclose to your employer, client, as appropriate, any compensation/consideration/benefit received by or paid to others for the recommendation of products or services

Question 9

Standards of Professional Conduct - (VII) Responsibilities as a CFA Member/Candidate

Answer 9

• Conduct as Participants in the CFA program: You musn’t engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation.
• Reference to CFA Institute, the CFA Designation, and the CFA Program: When referring to CFA Institute, CFA membership, candidacy, or the CFA designation, you must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute, holding the CFA designation or candidacy in the CFA program (in other words, you can’t say you can guarantee superior returns b/c you have a CFA)

Question 10

Guidance for Standards of Professional Conduct - (I) Professionalism

Answer 10

Don’t let the investment process be influenced by any external sources. Modest gifts are permitted. Distinguish between gifts from clients and gifts from entities seeking influence to the detriment of the client. Gifts must be disclosed to the member’s employer either prior to acceptance or after.

Question 11

Mosaic theory

Answer 11

In accordance to Standard II(A) - Material Non-Public Information: if you have access to non-material non-public information + public information and derive your own conclusion about a company that isn’t known to the public, that’s not a violation of Standard II(A)