CFA Code of Ethics

Fully prepare yourself to become a CFA Charterholder and set yourself apart from the competition by knowing all about the six components of the CFA Code of Ethics and what can happen to those who violate the CFA Code of Ethics Standards.

• There are six components of the CFA Code of Ethics.
• There are also seven areas within the Standards of Conduct that CFA Institute members are held responsible for.
• Those who violate the CFA Code of Ethics and Standards but are not convicted of a crime will most likely receive a summary suspension.
• The CFA Institute sanctions people for not abiding by the candidate pledge signed before each level of the CFA exam.

CFA candidates need to master Ethics and Standards of Professional Conduct as it is a constant on all three CFA exam levels. Ethics uses the same base knowledge for Level I, Level II, and Level III, so getting a grasp early on will benefit you during future exams.

Six Components of the CFA Code of Ethics

There are six components to the CFA Code of Ethics. A member of the CFA Institute must:

1. Act with integrity, competence, diligence, 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 clients’ interests 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 professionally and ethically to reflect credit on themselves and the profession.
5. Promote the integrity of, and uphold the rules governing, capital markets.
6. Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.

What Are the CFA Standards of Conduct?

There are seven areas within the CFA Standards of Conduct. They are as follows:

1. Professionalism
   1. Knowledge of the law
   2. Independence and objectivity
   3. Misrepresentation
   4. Misconduct
2. Integrity of Capital Markets
   1. Material non-public information
   2. Market manipulation
3. Duties to Clients and Prospective Clients
   1. Loyalty and prudence
   2. Fair dealing
   3. Suitability
   4. Performance presentation
   5. Preservation of confidentiality
4. Duties to Employers
   1. Loyalty
   2. Additional compensation arrangements
   3. Responsibilities of supervisors
5. Investment Analysis, Recommendations, and Action
   1. Diligence and reasonable basis
   2. Communication with clients and prospective clients
   3. Records retention
6. Conflicts of Interest
   1. Disclosure of conflicts
   2. Priority of transactions
   3. Referral fees
7. Responsibilities as a CFA Institute Member or CFA Candidate
   1. Conduct as participants in CFA Institute programs
   2. Reference to CFA Institute, CFA designation, and CFA Program

There are several causes for investigation from the CFA Institute. Here are some of the most common.

• Receiving assistance during the CFA exam.
• Writing or erasing past the CFA exam time limit.
• Using an unauthorized calculator.
• Opening the question booklet before the start of the CFA exam.

If you violate the CFA Institute Code of Ethics and Standards of Professional Conduct, you’ll face PCP sanctions. Some of the common penalties include a private reprimand, a censure, suspension of CFA membership, suspension of the right to use your CFA designation, revocation of membership, a summary suspension, or permanent or indefinite termination of your participation in the CFA program.

As you prepare for the CFA Standards of Conduct, the following will help you understand each one to ensure you’re ready on exam day.

CFA Standard 1 is Professionalism. This standard shows why high ethical standards are vital even when issues aren’t identified in writing.

1(A): Knowledge of the Law

Knowledge of Law establishes that investment professionals need an understanding of all applicable laws and a framework for resolving ethical dilemmas.

1(B): Independence and Objectivity

Independence and Objectivity deals with gifts or payments that can compromise your objectivity. Analysts, credit raters, and advisors are included.

1(C): Misrepresentation

Misrepresentation demonstrates that CFA members cannot knowingly misrepresent investment analysis, recommendations, or professional actions.

1(D): Misconduct

Misconduct deals with issues of honesty and expresses that CFA members cannot compromise their integrity or reputation.

Standard 2 is Integrity of Capital Markets and goes over the sharing of material information that is non-public along with the intent to manipulate markets.

2(A): Material Non-public Information

Material Non-public Information shows that those who possess it could impact the markets inordinately and should not act based on this information.

2(B): Market Manipulation

Market Manipulation states that members avoid any activity that could manipulate trading fraudulently or cause a distortion of securities pricing.

CFA Standard 3 deals with client loyalty, care, and discretion. Maintaining confidentiality and performance presentation are covered as well with an emphasis on ensuring that investment professionals put the interests of clients first.

3(A): Loyalty, Prudence, and Care

Loyalty, Prudence, and Care shows why putting the interests of clients first is vital.

3(B): Fair Dealing

Fair Dealing shows why CFA members need to take advice and action with clients objectively.

3(C): Suitability

Suitability deals with recommendations and transactions connected to a client’s willingness.

3(D): Performance Presentation

Performance Presentation urges CFA members to communicate fairly and accurately about investment performance.

3(E): Preservation of Confidentiality

Preservation of Confidentiality ensures that CFA members maintain the confidentiality of all clients in all circumstances.

Duties to Employers goes over the responsibilities investment professionals have to their employers.

4(A): Loyalty

Loyalty demands that CFA members not behave in a way that could negatively affect their employer’s reputation.

4(B): Additional Compensation Arrangements

Additional Compensation Arrangements reminds members not to accept any gifts or additional compensation.

4(C): Responsibilities of Supervisors

Responsibilities of Supervisors shows why supervisors need to be sure that everyone they are managing complies with the appropriate laws, policies, and the Code of Standards.

CFA Standard 5 goes over investment professionals’ responsibilities related to due diligence before making recommendations.

5(A): Diligence and Reasonable Basis

Diligence and Reasonable Basis requires that recommendations be made based on independent research or quantitative research from other trusted sources.

5(B): Communication with Clients and Prospective Clients

Communication with Clients and Prospective Clients reminds members to disclose the limitations and risks associated with investment recommendations.

5(C): Record Retention

Record Retention demands that CFA members maintain records for analysis and recommendations.

Standard 6 deals with disclosing any potential conflicts between clients, employers, or individual interests.

6(A): Disclosure of Conflicts

Disclosure of Conflicts reminds CFA members to disclose any situations that could result in a conflict of objectivity or interfere with loyalty to clients or employers.

6(B): Priority of Transactions

Priority of Transactions states that investment transactions take precedence over investment transactions of a CFA member.

6(C): Referral Fees

Referral Fees demand that CFA members report any sums received from recommendations of services or products to employers or clients.

Standard 7 reviews the responsibilities of CFA members regarding their profession and the CFA Institute.

7(A): Conduct as Members and Candidates in the CFA Program

Conduct as Members and Candidates in the CFA Program reminds members and candidates not to risk the integrity of the CFA Institute.

7(B): Reference to CFA Institute, the CFA Designation, and the CFA Program

Reference to CFA Institute, the CFA Designation, and the CFA Program goes over the use of the CFA Institute name and logo by firms and individuals.

Test your understanding of the CFA Code of Ethics and Standards of Professional Conduct by reviewing the CFA Institute’s practice casebook.

The CFA Institute also sanctions some candidates for exam violations. These sanctions can be incredibly serious and lead to permanent or indefinite termination of your participation in the CFA Program. The following are some examples of exam violations that all CFA candidates should be careful to avoid.

• Giving or receiving assistance on the exam. This includes looking at another candidate’s exam or exam answers.
• Opening, working on, or reading the exam during a time not authorized by the testing personnel.
• Removing exam materials from the testing room.
• Failing to stop your exam when the proctor says time is up.
• Using unapproved calculators, mobile phones, cameras, headsets, computers, tablets, wearable technology such as fitness tracking devices, smart watches, or any other remote communication or photographic device, during the exam.