CFA Ethical and Professional Standards Syllabus

What does Standard III(A) Loyalty, Prudence, and Care require regarding clients' interests?

Members have a duty of loyalty to clients and must act for their benefit, placing clients' interests before their employer's or their own. They must act with the care and prudence of a careful, skilled person and determine and comply with applicable fiduciary duty to clients.

Under Standard III(A), to whom is loyalty owed when managing a pension or trust?

To the ultimate beneficiaries of the trust or plan, not to the person who hired the manager (e.g., plan sponsor or trustee). Investment decisions must serve the beneficiaries' interests.

How are 'soft dollars' (client brokerage) governed under Standard III(A)?

Brokerage commissions are an asset of the client and must be used to benefit the client. Members must seek best execution and may direct brokerage to obtain research that benefits the client, but client brokerage must not be used to pay for the manager's normal operating expenses.

What does Standard III(B) Fair Dealing require?

Members must deal fairly and objectively with all clients when providing investment analysis, making recommendations, taking investment action, or engaging in other professional activities. 'Fairly' (not 'equally') means clients should not be discriminated against, e.g., in dissemination of recommendations or trade allocation.

Under Standard III(B), how should a new investment recommendation or change be disseminated?

Communicate to all clients on a fair basis—shortening the time between decision and dissemination, distributing to all eligible clients simultaneously, and ensuring clients who act on older recommendations are treated fairly when a recommendation changes.

Under Standard III(B), how should oversubscribed (e.g., IPO) allocations be handled?

Allocate trades fairly among all clients for whom the investment is suitable, typically on a pro rata basis by order size or portfolio size, and not give preferential allocation to favored or larger accounts or to the firm's own accounts.

What does Standard III(C) Suitability require for advisers with an ongoing relationship?

Members must make a reasonable inquiry into a client's investment experience, risk and return objectives, and financial constraints (IPS), and reassess them regularly. Recommendations and actions must be suitable given the client's objectives and the total portfolio context.

Under Standard III(C), how is suitability judged for an individual security?

Suitability is judged in the context of the total portfolio, not in isolation. A security that seems risky alone may be suitable if it improves the portfolio's overall risk/return characteristics (e.g., via diversification).

Under Standard III(C), what governs suitability when managing to a stated mandate or index?

When a member manages a fund to an index or stated mandate, suitability is measured against the stated objectives and constraints of that mandate/strategy, not the needs of any individual investor in the fund.

What does Standard III(D) Performance Presentation require?

When communicating investment performance, members must make reasonable efforts to ensure it is fair, accurate, and complete. They must not misstate performance or mislead clients about past results, and should disclose whether performance is gross or net of fees and represents composites.

What does Standard III(E) Preservation of Confidentiality require?

Members must keep information about current, former, and prospective clients confidential unless: (1) the information concerns illegal activities by the client; (2) disclosure is required by law; or (3) the client or prospective client permits disclosure.

Under Standard III(E), must a member provide confidential client information to CFA Institute's Professional Conduct Program (PCP)?

Yes. Cooperating with a PCP investigation by providing confidential client information is not considered a violation of Standard III(E), because the PCP itself is bound to maintain confidentiality.

What are the three sub-sections (A–C) of Standard IV: Duties to Employers?

IV(A) Loyalty; IV(B) Additional Compensation Arrangements; IV(C) Responsibilities of Supervisors.

What does Standard IV(A) Loyalty require of employees?

In matters related to employment, members must act for the benefit of their employer, not deprive the employer of their skills and abilities, divulge confidential information, or otherwise cause harm to the employer. (Loyalty to the employer does not override the duty to clients or the law.)

Under Standard IV(A), what may a departing employee do or not do before resigning?

Before resignation, the employee must continue to act in the employer's best interest and must not misappropriate trade secrets, misuse confidential information, solicit the employer's clients, or take records/files. After leaving, they may use general knowledge/skills and may contact former clients using public information (absent a non-compete agreement).

Under Standard IV(A), how is whistleblowing treated?

Duty of loyalty to the employer is set aside when an activity would harm clients, the integrity of capital markets, or the public—i.e., acting against the employer's interest to protect these higher interests (whistleblowing) is permitted and may be required, provided the motivation is protecting these interests, not personal gain.

What does Standard IV(B) Additional Compensation Arrangements require?

Members must not accept gifts, benefits, compensation, or consideration that competes with, or might create a conflict of interest with, their employer's interest unless they obtain written consent from all parties involved.

What does Standard IV(C) Responsibilities of Supervisors require?

Members must make reasonable efforts to detect and prevent violations of applicable laws, rules, regulations, and the Code and Standards by anyone subject to their supervision or authority.

Under Standard IV(C), what should a supervisor do if no adequate compliance system exists?

Decline supervisory responsibility in writing until the firm adopts reasonable procedures to allow adequate supervision. A supervisor who lacks the ability to fulfill the duty should not accept it.

Under Standard IV(C), what steps should a supervisor take upon learning of a possible violation?

Initiate an investigation promptly, increase supervision or place limits on the suspected employee's activities during the investigation, and ensure the firm's compliance procedures are adequate. Relying solely on the employee's assurances is insufficient.

What are the three sub-sections (A–C) of Standard V: Investment Analysis, Recommendations, and Actions?

V(A) Diligence and Reasonable Basis; V(B) Communication with Clients and Prospective Clients; V(C) Record Retention.

What does Standard V(A) Diligence and Reasonable Basis require?

Members must exercise diligence, independence, and thoroughness in analyzing investments and taking actions, and must have a reasonable and adequate basis, supported by appropriate research and investigation, for any analysis, recommendation, or action.

Under Standard V(A), what is the responsibility when using secondary or third-party (external) research?

Members must make reasonable efforts to determine that the third-party research is sound (review assumptions, rigor, timeliness, objectivity). If they cannot establish that the research is sound, they should not rely on it.

What does Standard V(B) Communication with Clients require regarding the investment process?

Members must disclose to clients the basic format and general principles of the investment processes, promptly disclose any material changes that might affect those processes, and use reasonable judgment to identify and include the factors important to their analyses and recommendations.

Under Standard V(B), how must members distinguish fact from opinion?

Members must clearly distinguish between fact and opinion in the presentation of investment analysis and recommendations, and identify the limitations and risks inherent in the investment (and significant assumptions used).

What does Standard V(C) Record Retention require?

Members must develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients.

What is the recommended minimum record-retention period under Standard V(C) absent other regulatory requirements, and who owns the records?

CFA Institute recommends maintaining records for at least seven years. Records created as part of professional activity are generally the property of the firm/employer, and cannot be taken when the employee leaves.

What are the three sub-sections (A–C) of Standard VI: Conflicts of Interest?

VI(A) Disclosure of Conflicts; VI(B) Priority of Transactions; VI(C) Referral Fees.

What does Standard VI(A) Disclosure of Conflicts require?

Members must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with their duties to clients, prospective clients, and employer. Disclosures must be prominent, in plain language, and communicate the relevant information effectively.

What does Standard VI(B) Priority of Transactions require?

Investment transactions for clients and employers must have priority over investment transactions in which a member is the beneficial owner. Personal (and family/beneficial-owner) trades must come after clients and the employer have been served.

What does Standard VI(C) Referral Fees require?

Members must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from or paid to others for the recommendation of products or services. Disclosure allows clients to evaluate any partiality and the full cost of services.

What are the two sub-sections (A–B) of Standard VII: Responsibilities as a CFA Institute Member or CFA Candidate?

VII(A) Conduct as Participants in CFA Institute Programs; VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program.

What does Standard VII(A) prohibit regarding CFA Institute programs?

Members and candidates must not engage in conduct that compromises the reputation or integrity of CFA Institute or the CFA designation, or the validity, integrity, or security of CFA Institute programs—e.g., cheating, disclosing exam content, or violating exam rules.

Under Standard VII(A), may a candidate express personal opinions about the CFA exam or disclose exam questions?

They may express personal opinions about the exam or testing experience, but must not disclose, solicit, or share confidential exam information (specific questions, topics tested, or formulas/content), as this compromises exam integrity.

What does Standard VII(B) require regarding references to the CFA designation?

Members and candidates must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute, holding the CFA designation, or candidacy in the CFA Program. They may state factual matters but must not imply the designation guarantees superior performance.

Under Standard VII(B), what is the correct usage of the 'CFA' marks?

'CFA' and 'Chartered Financial Analyst' must be used as adjectives, never as nouns (e.g., 'she is a CFA charterholder,' not 'she is a CFA'). Only charterholders in good standing who have completed the program and met membership requirements may claim the designation.

Under Standard VII(B), how should someone enrolled in the CFA Program describe their status?

They may state they are a candidate only if they are currently registered for or waiting for results of a CFA exam. There is no partial designation; one cannot cite Level I or II passage as a designation, only as a factual statement that those levels were passed.

What is the relationship between the Code of Ethics and the Standards of Professional Conduct?

The Code of Ethics sets out the broad ethical principles, while the seven Standards of Professional Conduct provide the specific, enforceable rules and guidance that operationalize those principles. Together they form the Code and Standards enforced through the Professional Conduct Program.

What is the key distinction between 'fair dealing' (III-B) and 'equal dealing'?

The standard requires fair, not equal, treatment. It is operationally impossible to treat all clients exactly equally (e.g., simultaneous contact), but members must not discriminate against any client and must disseminate recommendations and allocate trades in an even-handed, non-preferential manner.

Contrast a member's duty under Standard II(A) (material nonpublic information) when dissemination is impossible versus possible.

If the information can be made public, the member should encourage the issuer to disclose it publicly. If public dissemination is not possible, the member must maintain confidentiality and must not trade or recommend trading on the material nonpublic information.