The CFA Code of Ethics and the Standards of Professional Conduct serves as an ethical guideline for the members and candidates of the CFA Institute. All CFA Members and candidates have to adhere to the Codes of Ethics and Standards of Professional Conduct as well promote these values to other stakeholders in the investment profession.
The CFA Code of Ethics and Standards of Professional Conduct Overview
The CFA Code of Ethics and Standards of Professional Conduct are fundamental to the values of CFA Institute and crucial to reach its mission to lead the investment profession globally by encouraging the highest standards of ethics, education, and professional excellence for the benefit of the society. High ethical standards are crucial to maintain the public’s trust in financial markets and in the investment profession.
Since their creation in the year 1960, the Code of Ethics and Standards of Professional Conduct have promoted the integrity of the CFA members and served as a model for gauging the ethics of investment professionals globally, regardless of cultural differences, job function, or local laws and regulations. All CFA members (including holders of the CFA designation) and CFA candidates have to abide by the Code of Ethics and Standards of Professional Conduct and are encouraged to inform their employer of this responsibility. Violations are able to result in disciplinary sanctions by CFA Institute. Sanctions are able to include revocation of membership, revocation of candidacy in the CFA Program, and revocation of the right to use the CFA designation.
The CFA Code of Ethics
Here are the six components of the CFA Code of Ethics:
- Members of CFA Institute and candidates have to act with their integrity, competence, diligence, respect and in an ethical manner with the public, the clients, prospective clients, the employers, the employees, colleagues in the investment profession, and other participants in global capital markets.
- Members of CFA Institute and candidates have to place the integrity of the investment profession and the interests of clients above their personal interests.
- Members of CFA Institute and candidates have to use reasonable care and exercise independent professional judgment once conducting investment analysis, creating investment recommendations, taking investment actions, and engaging in other professional activities.
- Members of CFA Institute and candidates have to practice and encourage others to practice in a professional and ethical manner which will reflect credit on themselves and the profession.
- Members of CFA Institute and candidates have to promote the integrity and viability of the global capital markets for the benefit of society.
- Members of CFA Institute and candidates have to maintain and improve their professional competence, strive to maintain and improve the competence of other investment professionals.
The CFA Standards of Professional Conduct
Here are the seven components of the CFA Standards of Professional Conduct:
- Professionalism
- Knowledge of the law
- Independence and objectivity
- Misrepresentation
- Misconduct
- Integrity of Capital Markets
- Material nonpublic information
- Market manipulation
- Duties to Clients and Prospective Clients
- Loyalty, prudence, and care
- Fair dealing
- Suitability
- Performance presentation
- Preservation of confidentiality
- Duties to Employers
- Loyalty
- Additional compensation arrangements
- Responsibilities of supervisors
- Investment Analysis, Recommendations, and Action
- Diligence and Reasonable Basis
- Communication with clients and prospective clients
- Records retention
- Conflicts of Interest
- Disclosure of conflicts
- Priority of transactions
- Referral fees
- Responsibilities as a CFA Institute Member or CFA Candidate
- Conduct as participants in CFA Institute programs
- Reference to the CFA Institute, the CFA designation, and the CFA program
Ethical Responsibilities Required by the CFA Code and Standards
Here are some ethical responsibilities required by the CFA Code and Standards:
- Professionalism
Standard I is wide in scope and directed toward competence within a small business environment. This standard makes it obvious that high ethical standards have to apply even when a problem has not been identified in writing. Aside from that, it also specifies that the investment professionals must have a working knowledge of the laws and a framework to resolve ethical dilemmas. - Integrity of Capital Markets
Standard II talks about sharing of material information qualified as non-public and the intent for manipulating markets. It prohibits the CFA members from acting in a way to distort market value via manipulation. - Duties to the Clients and Prospective Clients
Standard III talks about the client’s loyalty, discretion, and care; suitability; fair dealing; performance presentation; and maintaining confidentiality. Also, the investment professionals are obligated to put the interests of their own clients before that of their organization or their personal interests. - Duties to the Employers
Standard IV discusses basic responsibilities by the investment professionals for their employers. Language includes the premise of do no harm toward an employer, bearing that there can sometimes be a conflict of loyalty between personal and agency interests. There are specific instances outlined in which an investment professional can be considered in violation of duties to the employers, including unfair competition and sharing of confidential information. Also, whistleblowing, or reporting unethical employers, is discussed in this section. - Investment Analysis, Recommendations, and Action
Standard V discusses the responsibility of investment professionals about due diligence before making recommendations to clients. The aim is to prevent conjecture in the form of a hot tip but rather provides which recommendations be made based on a company’s independent research or the quantitative research of other reputable sources. - Conflicts of Interest
Of course, there are some conflicts of interest and loyalty within any business organization, leading to an ethical dilemma. Standard VI determines that the CFA members and candidates have to disclose any potential conflicts between the clients and the employers, individual interests, and the like. The aim of this is to protect the employers from an unknown clash of concerns which may promote unethical decisions. - Responsibilities as a CFA Institute Member or CFA Candidate
Standard VII indicates that the CFA members and candidates must not risk the integrity of the CFA Institute or the CFA designation via unethical action. Also, these standards address cheating on the CFA exams.
