1.2 Standards of Professional Conduct - Standards of Professional Conduct
1. Professionalism
Professionalism is the cornerstone of the CFA Institute's Standards of Professional Conduct. It encompasses the integrity, competence, and respect that a CFA charterholder must exhibit in all professional activities. This standard requires members to maintain a high level of ethical behavior, avoid conflicts of interest, and always act in the best interest of their clients.
Example: A CFA charterholder is approached by a friend to invest in a new startup. The charterholder must disclose any potential conflicts of interest and ensure that the investment aligns with the client's financial goals and risk tolerance, rather than being influenced by personal relationships.
2. Integrity of Capital Markets
The integrity of capital markets is another critical standard. It mandates that CFA charterholders must not engage in any activities that could compromise the fairness and transparency of financial markets. This includes avoiding insider trading, ensuring accurate reporting, and promoting fair dealing among market participants.
Example: If a CFA charterholder comes across non-public information about a company, they must refrain from trading based on that information. Instead, they should report the information to the appropriate authorities to maintain the integrity of the market.
3. Duties to Clients
Duties to clients revolve around the fiduciary responsibility that CFA charterholders have towards their clients. This standard emphasizes the importance of putting clients' interests ahead of their own, providing unbiased and objective advice, and ensuring that all client communications are clear and transparent.
Example: A CFA charterholder must disclose all fees and potential risks associated with an investment product to their clients. They should also recommend products that align with the client's financial objectives, even if those products yield lower commissions for the charterholder.
4. Duties to Employers
Duties to employers require CFA charterholders to act in the best interest of their employers while adhering to the Standards of Professional Conduct. This includes maintaining confidentiality of employer information, avoiding conflicts of interest, and ensuring that any outside business activities do not interfere with their primary employment duties.
Example: A CFA charterholder working for a financial institution must not use proprietary information for personal gain. They should also disclose any potential conflicts of interest that could arise from their outside business activities.
5. Investment Analysis, Recommendations, and Actions
This standard focuses on the quality and integrity of the investment analysis, recommendations, and actions taken by CFA charterholders. It requires them to conduct thorough research, provide unbiased and objective analysis, and ensure that their recommendations are based on sound investment principles.
Example: A CFA charterholder must ensure that their investment recommendations are based on comprehensive research and not influenced by personal biases or external pressures. They should also document their analysis and rationale to provide transparency to clients.
6. Conflicts of Interest
Conflicts of interest are a significant concern in the financial industry. This standard requires CFA charterholders to identify, disclose, and manage any potential conflicts of interest that could arise in their professional activities. They must take steps to mitigate these conflicts to ensure that their actions remain in the best interest of their clients.
Example: If a CFA charterholder has a financial interest in a company they are recommending to a client, they must disclose this conflict to the client and take steps to ensure that their recommendation is not influenced by their personal gain.
7. Responsibilities as a CFA Institute Member or CFA Candidate
As members or candidates of the CFA Institute, individuals are expected to uphold the reputation of the organization and the CFA designation. This standard requires them to adhere to the CFA Institute Code of Ethics and Standards of Professional Conduct, participate in continuing education, and avoid any actions that could bring disrepute to the profession.
Example: A CFA candidate must refrain from discussing exam content with others to maintain the integrity of the CFA program. They should also actively participate in professional development activities to enhance their knowledge and skills.