Ethical and Professional Standards

Résumé

Ethics is the largest and most heavily weighted topic at CFA Level 1 (15-20%). It is built on the CFA Institute Code of Ethics (six principles) and the Standards of Professional Conduct, organized in seven standards: I Professionalism, II Integrity of Capital Markets, III Duties to Clients, IV Duties to Employers, V Investment Analysis, Recommendations and Actions, VI Conflicts of Interest, and VII Responsibilities as a CFA Institute Member or Candidate. Each standard contains sub-sections that members and candidates must follow, supported by guidance and application examples. Standard I covers knowledge of the law, independence and objectivity, misrepresentation, and misconduct. Standard II addresses material nonpublic information (and the Mosaic Theory) and market manipulation. Standard III covers loyalty, prudence and care, fair dealing, suitability, performance presentation, and preservation of confidentiality. The Global Investment Performance Standards (GIPS) are voluntary, ethical standards for presenting investment performance to ensure fair representation and full disclosure; compliance is on a firm-wide basis. Candidates should master an ethical decision-making framework: identify the relevant facts and stakeholders, consider applicable standards and alternatives, decide and act, then reflect on the outcome. When the law and the Code and Standards differ, members must follow the stricter rule. Ethics questions are scenario-based, testing application rather than memorization, so the candidate must recognize violations, required disclosures, and appropriate conduct in realistic situations involving clients, employers, and capital markets.