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CFA® Seminars
Study Session 1 – Sample Notes
1.
“The code of ethics”
Learning outcomes
The Code of Ethics establishes the framework for ethical decision making in the
investment profession.
Your learning objectives for this lesson are to be able to state the four components of
the Code of Ethics
Members of the AIMR shall:
1. Act with integrity, competence and dignity when dealing with the public, clients and
prospects.
2. Practice and encourage others to practice in a professional manner, that will reflect credit on
the members of the profession
3. Strive to maintain and improve their competence and that of others in the profession
4. Use reasonable care and exercise independent professional judgment
2.
“Standards of professional conduct”
Learning outcomes
The AIMR Standards are organized into five categories:
I.
II.
III.
IV.
V.
Fundamental Responsibilities
Relationships with and Responsibilities to the Profession
Relationships with and Responsibilities to the Employer
Relationships with and Responsibilities to Clients and Prospects
Relationships with and Responsibilities to the Investing Public
Each category contains multiple concepts for which the candidate is responsible.
Your learning objectives for this lesson are to be able to identify the ethical
responsibilities required by the Code and Standards in these areas.
Sample Notes
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3.
CFA® Seminars
“Standards of Practice Handbook”
Learning outcomes
The Handbook addresses the application of the Code and Standards. For each standard,
the Handbook discusses the purpose and scope of the standard, the application of the
standard to factual situations, and procedures for complying with the standard.
In this lesson we will focus on:
(1)
(2)
(3)
“the purpose and scope of the standard” for each standard,
the “application of the standard” for each standard, and
“Procedures for compliance” with each standard
Your learning objectives for this lesson are to be able to:
a)
b)
c)
Demonstrate a thorough knowledge of the Standards of Professional Conduct by
recognizing and applying the Standards to specific situations;
Distinguish between conduct that conforms to the Code and the Standards and
conduct that violates the Code and the Standards;
Identify disciplinary procedures and sanctions set forth in the Code and
Standards.
Standard I: Fundamental Responsibilities
Standard I: Fundamental Responsibilities
Members shall:
A.
Maintain knowledge of and comply with all applicable laws, rules and regulations
(including AIMR’s Code of Ethics and Standards of Professional Conduct) of any
government, governmental agency, regulatory organization, licensing agency, or
professional association governing the members’ professional activities.
B.
Not knowingly participate or assist in any violation of such laws, rules or regulations
Sample Notes
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Purpose and scope
This statement assists members in avoiding legal and ethical traps and violations of the code of
ethics. Members should always aspire to the highest level of ethical conduct.
Members who practice in multiple jurisdictions may be subject to varied securities laws.
Rule of thumb: If the applicable laws are stricter than those of the code and standards, then the
stricter laws apply. If the applicable laws are less strict, then the laws of the code and standards
apply.
Illustrative Example
What law applies if a member practices in a lenient country, but offers services to a stricter
country?
This will depend on which country governs the conduct of the member and whichever country it
is he must comply with those laws.
The Securities and Exchange Commission (SEC) will apply the Advisors Act on the “conduct”
and “effect” basis. This means that in the event that a sizeable portion of the member’s advisory
services/conduct take place or have effect in the US, then US laws will apply.
Per I(B) - members are responsible for violations they knowingly participate in or assist. AIMR
acknowledges the fact that members may not recognise violations if they are not fully aware of
all the facts of the case. The code does not require legal violations to be reported, however this
may be prudent.
Application of the standard
For example, a broker who is responsible for the underwriting of securities receives information
that indicates that the disclosed financial statements of a company may overstate the issuer’s
earnings. In such a case, the broker must seek and follow the advice of an attorney.
A member who is aware of a misleading statement relating to a prospectus must follow the
following procedures:
•
•
•
Report the misleading statement to the supervisor
If the supervisor does not dissociate, then the member must sever all connections with the
client
The member should seek legal advice
Members that work in a less developed country with no securities laws must follow the AIMR
Code of Conduct and Standards of Professional Conduct.
Sample Notes
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Members that work in a country with very strict laws must remember that if the applicable laws
are stricter than those of the code and standards, then the stricter laws apply.
Procedures for compliance
Members can acquire and maintain knowledge about applicable laws, rules and regulation by:
•
•
•
Maintaining current files, of applicable statutes, rules, regulations and important cases in
a readily accessible manner
Keeping informed, about any changes of laws
Reviewing procedures - compliance procedures should be reviewed on a regular basis to
ensure that they reflect current law
When members suspect a client or colleague of engaging in illegal activities, they should:
•
•
Determine the legality - consult counsel to determine if the act is illegal
Disassociate from any illegal or unethical activity, and urge the firm to attempt to
persuade the perpetrators to cease such conduct. Dissociation may include reporting the
event to the relevant authorities.
Standard II: Relationships with and responsibilities to the profession
Standard II(A) - Use of professional designation
1.
AIMR members may reference their membership only in a dignified and judicious
manner. The use of the reference may be accompanied by an accurate explanation of the
requirements that have been met to obtain membership in these organisations.
2.
Those who have earned the right to use the Chartered Financial Analyst designation may
use the marks “Chartered Financial Analyst” or “CFA” and are encouraged to do so, but
only in a proper, dignified and judicious manner. The use of the designation may be
accompanied by an accurate explanation of the requirements that have been met to obtain
the right to use the designation.
3.
Candidates in the CFA program, as defined in the AIMR Bylaws, may reference their
participation in the CFA program and cannot imply that the candidate has achieved any
type of partial designation. But the reference must clearly state that an individual is a
candidate and has no designation.
Sample Notes
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Purpose and scope
Since achievement of the CFA charter signifies a certain degree of knowledge, the public and
clients expect a certain degree of knowledge when encountering the designation CFA. The same
is also true of membership to the AIMR, FAF and ICFA.
The CFA designation may only be used by persons who have passed all 3 levels of examinations
and have received their charters. Candidates may state that they have passed certain levels of the
CFA program.
Application of the Standard
It is important to note that one cannot say that one is a CFA candidate UNLESS one is enrolled
for the next available exam.
A person may not say that since he passed CFA in his first attempt, that clients can expect
superior service from him, implying that those who pass on their second attempt are less
qualified to offer financial services.
Procedures for compliance
All letterheads, business cards, etc. may only contain thereon the CFA designation. However this
must be printed the same size as that of the member’s name. Any description of the designation
should merely state what requirement has been fulfilled to obtain the designation.
Standard II: Relationships with and responsibilities to the profession
Standard II (B) - Professional misconduct
1.
Members shall not engage in any professional conduct involving dishonesty, fraud,
deceit, or misrepresentation or commit any act that reflects adversely on their honesty,
trustworthiness, or professional competence.
2.
Members and candidates shall not engage in any conduct or commit any act that
compromises the integrity of the CFA designation or the integrity or validity of the
examinations leading to the award of the right to use the CFA designation.
Purpose and scope
All CFA members and candidates must refrain from conduct that exhibits a lack of honesty,
trustworthiness, or fitness to practice as an investment professional.
Sample Notes
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Application of the standard
•
An investment advisor that gets drunk during lunch and gives investment advice in the
afternoon is clearly in violation of this standard.
•
Persons caught in possession of drugs, even though the drugs do not affect their
performance, are still in violation of this standard.
•
Defrauding a charity for personal gain is clearly a violation of this standard.
Procedures for compliance
Members should encourage their employers to:
•
•
•
take note that personal misbehaviour will not be tolerated
adopt a code of ethics to which all employees are required to abide by
conduct background checks on all employees to ensure that they are of the required
quality
Standard II: Relationships with and responsibilities to the profession
Standard II (C) - Prohibition against plagiarism
Members shall not copy or use, in substantially the same form as the original, material prepared
by another without acknowledging and identifying the name of the author, publisher, or source of
such material. Members may use, without acknowledgment, factual information published by
recognized financial and statistical reporting services or similar sources.
Purpose of the standard
All members are required to avoid plagiarism in the preparation of material for distribution to the
general public, employers, employees, etc. Plagiarism involves copying or using substantially the
same materials as prepared by others without acknowledging the source of the material. The only
exception is to copy factual information, as published by several recognised financial
institutions, as well as statistical information.
Sample Notes
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Plagiarism includes:
•
•
•
•
using excerpts from articles or reports prepared by others, and only making slight
changes
presenting statistical estimates of forecasts as prepared by others
using charts or graphs without stating their sources
copying computer spreadsheets etc. without obtaining the permission of the owners.
Application of the statement
•
Using someone else’s information but only adding in something new to it, and then
publishing the whole thing as your own clearly contravenes this standard.
•
If you use someone else’s computer model, make slight changes and publicize it as your
own, this also contravenes this standard.
•
Your firm develops a product of which you had no contribution. If you then use it as a
representative of the firm you need not say that you had nothing to do with it. However if
you use it in your own private capacity e.g. to give expert advice as a witness, then you
need to attribute it to the firms’ specific staff and not to yourself.
Procedures for compliance
Members should:
•
•
•
maintain all copies of the information used to generate a report
attribute quotations to the relevant author
attribute summaries to the relevant author
Sample Notes
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CFA® Seminars
Typical Exam Questions
Please note that the sample questions relate to session 1 and not necessarily to the
sample notes above.
Code of Ethics
1.
According to the AIMR Code of Ethics, specifically, how must members behave when
dealing with the public, clients, prospects, employers, employees, and fellow members?
A.
B.
C.
D.
with integrity and competence
with integrity, competence and dignity
with integrity and dignity
with integrity, competence and independent professional judgement
Answer
B.
How members must behave according to the AIMR Code of Ethics
According to the AIMR Code of Ethics, members must behave with integrity, competence
and dignity when dealing with the public, clients, prospects, employers, employees, and
fellow members.
Reference
Study Session 1 2003, Standards of Practice Handbook, Code of Ethics
2.
Mr A, an AIMR member resides in Country A, whose securities laws are stricter than the
AIMR Standards. Country B is where he does all of his business. Country B’s securities
laws are less strict than the AIMR Standards of Professional Conduct. The laws of Country
A state that members are governed by the laws of the Country in which they operate their
business. According to the AIMR Standards of Practice Handbook, Mr A has a duty to
comply with:
A.
B.
C.
D.
SEC regulations
the laws of Country A
the laws of Country B
the AIMR Standards of Professional Conduct
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Answer
D.
Complying with the standards of professional conduct
Mr. A, an AIMR member resides in Country A, whose securities laws are stricter than the
AIMR Standards. Country B is where he does all of his business. Country B’s securities
laws are less strict than the AIMR Standards of Professional Conduct. The laws of Country
A state that members are governed by the laws of the Country in which they operate their
business. According to the AIMR Standards of Practice Handbook, Mr. A has a duty to
comply with the AIMR Standards of Professional Conduct.
Reference
Study Session 1 2003, Standards of Practice Handbook, SPC 1
3.
John James has just passed level I of the CFA program. John is applying for a job with a
large Investment Bank and wishes to draw up his resume. Which of the following
statement(s) are correct?
I. John may state on his resume that he is a candidate for the CFA designation and has
passed Level I of the CFA program
II. John may state on his resume that he is a CFA
III. John may state on his resume that he has passed Level I of the CFA program and is
therefore partially designated as a CFA Charterholder
A.
B.
C.
D.
I and III only
I only
III only
II only
Answer
B.
What can be stated on a resume
John James has just passed level I of the CFA program. John is applying for a job with a
large Investment Bank and wishes to draw up his resume. John may state on his resume
that he is a candidate for the CFA designation and has passed Level I of the CFA program.
Reference
Study Session 1 2003, Standards of Practice handbook, SPC 2A
Sample Notes
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