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GoStudy - Ethics 2016 PDF
GoStudy - Ethics 2016 PDF
GoStudy - Ethics 2016 PDF
io
Go Study’s
CFA Exam Level 3
®
by GoStudy™
www.gostudy.io
Everything you need to pass & nothing you don’t
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Certain materials contained with this text are the copyrighted property of the CFA Institute. The
following is the copyright disclosure for those materials: “Copyright, 2016, CFA Institute.
Reproduced and republished from 2016 Learning Outcome Statements, Level III CFA® Program
Materials, CFA Institute Standards of Professional Conduct, and CFA Institute’s Global
Investment Performance Standards with permission from CFA Institute. All rights reserved.”
Disclaimer: These guided notes condense the original CFA Institute study material into 240
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we believe we cover all of the core concepts accurately we cannot guarantee nor warrant that this
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lot) and we cannot be held liable for your ultimate exam performance.
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Past Level III exams have seen more questions on compliance, portfolio management, and the
asset manager code of conduct than L1 and L2. Questions around suitability and fiduciary duty
have been especially prominent, perhaps reflecting the core focus of L3.
The bottom line: Basic knowledge is assumed, and it is probably worth at least one read through
the Institute’s official ethics guide within a month or so of the exam, but for the most part you are
better off doing lots of practice problems to get a feel for how to answer these questions. That’s
why we keep our overview of Ethics very high level and in outline form.
Questions
1. All CFA Institute members and candidates are required to comply with the Code and
Standards. So …does the action uphold the profession?
2. If you were the client would you agree with the course of action?
3. Would a moral person, or leader, follow this course of action?
Principles
1. When in doubt err towards the more strict guideline/regulation
2. There are differences between requirements as laid out in the Standards and
recommended practice or guidance. This distinction is often tested.
Ethics boils down to the golden rule. How would you want your financial advisor to act? What
actions should they take with respect to you and your portfolio?
Chances are you’d want them to act in your interests and not those of someone else paying them.
You would want them to communicate what they’re doing and explain why, to be honest in
reporting results, and to do it frequently enough that you don’t worry about what’s going on.
Finally, an investment professional should also uphold the integrity of capital markets, (which
you can think of as the greater good), even at their own expense.1
Always remember, there is a simple order of priority that should guide your actions—capital
markets, clients, employer, then you.
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Think Spiderman, with great power (you CFA Charterholder) comes great responsibility.
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From http://www.investopedia.com/exam-guide/cfa-level-1/ethics-standards/code-ethics.asp and
http://quizlet.com/3424974/cfa-ethics-code-and-standards-flash-cards/
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Soft Dollar
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Standard I: Professionalism
1. Knowledge of the Law
Keys: Know the rules. Comply with the more strict law, regulation, or CFA standard.
Disassociate from any violations.
a. You have to know, stay up-to-date and comply with the law. No excuses.
Note on Issuer Paid Research: Research must be thorough, unbiased, and independent. The
analyst must FULLY DISCLOSE conflicts and compensation structure. A flat fee that is
independent of the report’s conclusions is recommended but not required.
3. Misrepresentation
a. Must not knowingly give false impression in written, oral, advertising, or
electronic communication. This includes omitting facts.
b. Must not misrepresent:
i. Credentials
ii. Services offered
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From CFA Institute Official Code of Ethics…
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3. Suitability
1. Know client’s Risk and Return (think IPS constraints) and take action consistent
with those constraints. Suitability is from a PORTFOLIO perspective not that of
an individual security. Invest to the fund mandate if managing a fund.
4. Performance Presentation
1. Fair, accurate, and complete (will most likely be tested with GIPS not in Ethics)
i. Do not guarantee performance or misstate past performance
5. Preservation of Confidentiality
1. Keep Client (and former client) info confidential unless:
i. Illegal activities are suspected
ii. Disclosure is required by law
iii. Client or prospect allows disclosure
2. Providing information to CFA Institute for investigation is not a violation of this
standard
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Key: Would you want to know the information is the situation was reversed? If yes, then
disclose.
a. Disclose format and principals of investment processes & any changes to process
b. Include important factors for recommendations in communication (like basic
characteristics of the security)
c. Distinguish clearly between fact and opinion
3. Record Retention
a. Develop & maintain appropriate records with support for decisions (guidance is to
keep 7 years in either electronic or paper form). Records are firm property.
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iii. Chartered Financial Analyst and CFA marks always come after a charter
holder’s name or are used as adjectives not nouns
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