Ethics

Key to Terms

• Independence & Objectivity — Avoid influences (gifts, comp, pressure) that bias research/actions.
• Misrepresentation — Misleading claims about services, qualifications, or using others’ work without credit.
• Misconduct — Dishonest/fraudulent behavior reflecting poorly on professional integrity.
• Knowledge of the Law — Follow whichever is stricter: law, regulation, or CFA Standards.
• Material Nonpublic Info (MNPI) — Info a reasonable investor would find important but isn’t public.
• Mosaic Theory — Combining public + non-material nonpublic info = OK.
• Fair Dealing — Equal treatment in investment recommendations/trade allocation.
• Suitability — Investments must fit client objectives, constraints, risk profile.
• Best Execution — Most favorable execution for clients considering cost and quality.
• Soft Dollars — Brokerage benefits must benefit the client, not the firm/manager personally.
• Confidentiality — Protect client info unless law requires disclosure or client permits.
• Additional Compensation — Must disclose/obtain employer consent before accepting extra benefits.
• Supervisors’ Duties — Reasonable compliance systems to prevent violations.
• Diligence & Reasonable Basis — Thorough, well-supported research and recommendations.
• Communication with Clients — Distinguish fact vs opinion; disclose assumptions/risks.
• Record Retention — Keep research/client records as required.
• Priority of Transactions — Clients first, employer second, personal trades last.
• Referral Fees — Disclose referral compensation arrangements to all parties.
• CFA References — Correct use of CFA marks (“CFA charterholder” not “CFA certified”).
• GIPS — Global standards for fair, comparable investment performance reporting.

Code of Ethics

Broad principles guiding ethical conduct in investment practice.

• Act with integrity, competence, diligence, respect, and ethics.
• Place clients’ and profession’s integrity above personal interests.
• Exercise care and independent judgment.
• Promote integrity and viability of capital markets.
• Maintain and improve professional competence.

Standards — Overview

Seven standards of professional conduct; know structure and pitfalls.

1. I. Professionalism
2. II. Capital Markets Integrity
3. III. Duties to Clients
4. IV. Duties to Employers
5. V. Investment Analysis
6. VI. Conflicts of Interest
7. VII. Members & Candidates

I. Professionalism

Knowledge of the Law

Follow the stricter of law, regulation, or CFA Standards.

Independence & Objectivity

Avoid biased research from gifts/pressure; pre-clear issuer-paid travel, research perks.

Misrepresentation

No plagiarism, false claims, or misleading qualifications.

Misconduct

No dishonesty, fraud, or behavior harming professional integrity.

II. Integrity of Capital Markets

Material Nonpublic Info (MNPI)

No trading on MNPI; mosaic theory permitted.

Market Manipulation

No false rumors or manipulative trades (pump-and-dump, wash trades).

III. Duties to Clients

Loyalty, Prudence & Care

Act for client benefit; ensure best execution; use soft dollars for client’s benefit only.

Fair Dealing

Distribute recommendations/trades fairly; no selective disclosure.

Suitability

Know your client; match investments to IPS and risk tolerance.

Performance Presentation

Present results fairly and accurately; avoid cherry-picking.

Confidentiality

Keep client info private unless law requires disclosure.

IV. Duties to Employers

Loyalty

Act in employer’s best interest; no stealing clients/secrets before leaving.

Additional Compensation

Get written consent before accepting extra benefits.

Supervisors’ Duties

Implement and enforce compliance; investigate violations.

V. Investment Analysis

Diligence & Basis

Thorough research with reasonable basis; use reliable sources.

Communication

Distinguish fact vs opinion; disclose methods, risks, assumptions.

Record Retention

Maintain research and client records per rules.

VI. Conflicts of Interest

Disclosure

Fully disclose conflicts that may impair duty to clients.

Priority of Transactions

Clients first, employer second, personal trades last.

Referral Fees

Disclose referral arrangements clearly.

VII. Members & Candidates

Conduct in CFA Program

Follow exam rules; don’t compromise integrity.

References to CFA

Correct usage: “CFA charterholder,” “Passed CFA Level X”; avoid “CFA certified.”

GIPS Basics

Global Investment Performance Standards ensure fair, comparable reporting.

• Firm-wide; must comply with all rules if claiming compliance.
• Composites group similar portfolios.
• Use consistent data (e.g., time-weighted returns).
• Disclose required items (benchmarks, fees, dispersion, etc.).
• Verification: optional, firm-wide by an independent party.

Ethics-in-Practice Framework

Checklist for ethical decision-making:

1. Identify facts and stakeholders.
2. Which Standards apply?
3. Any conflicts or pressures?
4. What duties (loyalty, confidentiality, suitability) are involved?
5. Follow stricter rule of law, regulation, or Standards.
6. Choose option that protects clients/market integrity.
7. Dissociate and escalate if necessary.

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