CFA Ethics Cheat Sheet

Throughout your CFA exam journey, CFA Ethics can be the ace up your sleeve, given its relatively high topic-weight similar content across all three levels. Here, we have made the CFA Level 1 Ethics Cheat Sheet to assist speed up your revision of this section.

CFA Level 1 Ethics

Ethics is present in all three levels of the CFA exams. The members and candidates need to master for some reasons:

• Significant topic weighting and tested across three levels (10-20 percent).
• Highly transferable knowledge across three levels. The CFA Ethics works on the same base knowledge of Code and Standards for all three levels. It means that what you have learnt in Level 1 will still be applicable in Level 3 questions. Combined with the relatively little amount of time needed to master Ethics, you are going to have a very effort-efficient topic in your hands.
• Ethics adjustment that matters to your CFA exam pass or fail decision if you are a borderline case.

CFA Level 1 Ethics’ topic weighting 2022 is 15%-20%, which means 27-36 questions of the 180 questions of the CFA Level 1 exam are centered around this topic.

For 2022’s curriculum, it is now covered in the Study Session 19, which includes Reading 56-60.

The CFA Level 1 Ethics is focused on educating the candidates on the CFA Institute’s Code of Ethics and Standards of Professional Conduct, an ethical benchmark for the investment professionals worldwide. Equally crucial is the Global Investment Performance Standards (GIPS), which is the standard on how the companies are supposed to record, compare and present the investment performance.

Shortly, the CFA Ethics is there to teach you:

• how the investment managers should conduct themselves.
• how companies should represent their investment performance.

R57: Code of Ethics and Standards of Professional Conduct

Six Code of Ethics

• Act with integrity, competence, diligence, respect, and in an ethical manner with the public, prospective clients, the clients, the employers, the employees, colleagues in the investment profession, and other participants in the global capital markets.
• Place the integrity of the investment profession and also the interests of the clients above their own personal interests.
• Use reasonable care and exercise independent professional judgment once conducting investment analysis, creating investment recommendations, taking the investment actions, and engaging in other professional activities.
• Practice and encourage other members to practice in a professional and ethical manner which is going to reflect credit on themselves and the profession.
• Promote the integrity and viability of the global capital markets for the main benefit of society.
• Maintain and improve their own professional competence and strive to maintain and improve the competence of other investment professionals.

Seven Standards of Professional Conduct

Yes, you will need to know all of these 22 Standards and sub-sections in detail, plus their applications.

1. Professionalism

A. Knowledge of the Law
B. Independence and Objectivity
C. Misrepresentation
D. Misconduct

2. Integrity of Capital Markets

A. Material Nonpublic Information
B. Market Manipulation

3. Duties to Clients

A. Loyalty, Prudence, and Care
B. Fair Dealing
C. Suitability
D. Performance Presentation
E. Preservation of Confidentiality

4. Duties to Employers

A. Loyalty
B. Additional Compensation Arrangements
C. Responsibilities of Supervisors

5. Investment Analysis, Recommendations and Actions

A. Diligence and Reasonable Basis.
B. Communication with Clients and Prospective Clients
C. Record Retention

6. Conflicts of Interest

A. Disclosure of Conflicts
B. Priority of Transactions
C. Referral Fees

7. Responsibilities as a member of CFA Institute, or CFA Candidate

A. Conduct as the candidates and members in the CFA Program
B. Reference to the CFA Institute, the CFA Designation, and also the CFA Program

R58: Guidance for Standards I – VII

Standard I: Professionalism

A. Knowledge of the Law (Follow the law, rules and reg)
B. Independence and Objectivity (no gifts, compensation to cancel independence)
C. Misrepresentation (misrep analysis, action…plagiarism, guarantee return)
D. Misconduct (dishonest, fraud, damage: trust, integrity, reputation)

Standard II: Integrity of Capital Markets

A. Material Nonpublic Info (not act or cause other people to act on nonpublic material)
B. Market Manipulation (distort price or inflate volume, misled info)

Standard III: Duties to Clients

A. Loyalty, Prudence, and Care (Client first over the employer and own interest)
B. Fair Dealing (fair and objective client dealing, the different service levels disclosed)
C. Suitability (an advisor to client [client risk, profile overall], portfolio [diverse, policy])
D. Performance Presentation (communicating investment performance, GIPS, and fair)
E. Preservation of Confidentiality (past, present, future client confidentiality unless illegal, disclosed by the law or disclosed permitted by the client.

Standard IV: Duties to Employers

A. Loyalty (act to benefit employer)
B. Additional Compensation Arrangements (Agreement or arrangement, gifts, disclosure of nature, amount, duration)
C. Responsibilities of Supervisors (under supervision comply with the law, rules and reg, code)

Standard V: Investment Analysis, Recommendations, and Actions

A. Diligence and Reasonable Basis (independent, thorough investment analysis and rec., adequate research)
B. Communication with the Clients and Prospective Clients (comm with client, fact vs open)
C. Record Retention (record comm with the client (email), record for analysis, records are firms property)

Standard VI: Conflict of Interest

A. Disclosure of Conflicts (have to disclose the conflicts [employer, client, share ownership])
B. Priority of Transactions (client or employer transaction over beneficial owner)
C. Referral Fees (Referral or Rec. Arrangements, disclose prior agreement to boss or client)