1. Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets.
2. Place the integrity of the investment profession and the interests of clients above their own personal interests.
3. Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities.
4. Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession.
5. Promote the integrity of, and uphold the rules governing, capital markets.
6. Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.

1. Professionalism.
2. Integrity of Capital Markets.
3. Duties to Clients.
4. Duties to Employers.
5. Investment Analysis, Recommendations, and Action.
6. Conflicts of Interest.
7. Responsibilities as a CFA Institute Member or CFA Candidate.

Explain the ethical responsibilities required by the Code and Standard:

Investment Analysis, Recommendations, and Actions:

A) Diligence and Reasonable Basis

B) Communication with Clients and Prospective Clients

C) Record Retention.

Explain the ethical responsibilities required by the Code and Standard:

Professionalism:

A) Knowledge of the Law

B) Independence and Objectivity

C) Misrepresentation

D) Misconduct.

Explain the ethical responsibilities required by the Code and Standard:

Integrity of Capital Markets:

A) Material Nonpublic Information

B) Market Manipulation.

Explain the ethical responsibilities required by the Code and Standard:

Duties to Clients:

A) Loyalty, Prudence, and Care

B) Fair Dealing

C) Suitability

D) Performance Presentation

E) Preservation of Confidentiality.

Explain the ethical responsibilities required by the Code and Standard:

Duties to Employers:

A) Loyalty

B) Additional Compensation Arrangements

C) Responsibilities of Supervisors.

Explain the ethical responsibilities required by the Code and Standard:

Conflicts of Interest:

A) Disclosure of Conflicts

B) Priority of Transactions

C) Referral Fees.

Explain the ethical responsibilities required by the Code and Standard:

Responsibilities as a CFA Institute member or CFA Candidate:

A) Conduct as Members and Candidates in the CFA Program

B) Reference to CFA Institute, the CFA designation, and the CFA Program.

Standards of Professional Conduct & Guidance:

Professionalism:

Knowledge of the Law.

Members must understand and comply with all applicable laws, rules, and regulations (including the Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities. In the event of a conflict, follow the more strict law, rule, or regulation. Do not knowingly participate or assist in violations, and disassociate from any known violation.

Members must know the laws and regulations relating to their professional activities in all countries in which they conduct business.

Members must comply with applicable laws and regulations relating to their professional activity. Do not violate Code or Standards even if the activity is otherwise legal. Always adhere to the most strict rules and requirements (law or CFA Institute Standards) that apply.

Members should disassociate or separate themselves from any ongoing client or employee activity that is illegal or unethical, even if it involves leaving an employer (an extreme case). While a member may confront the involved individual first, he must approach his supervisor or compliance department. Inaction with continued association may be construed as knowing participation.

Standards of Professional Conduct & Guidance:

Professionalism:
Independence and Objectivity.

Members and Candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities. Members and Candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another’s independence and objectivity.

Do not let the investment process be influenced by any external sources. Modest gifts are permitted. Allocation of shares in oversubscribed IPOs to personal accounts is NOT permitted. Distinguish between gifts from clients and gifts from entities seeking influence to the detriment of the client. Gifts must be disclosed to the member’s employer in any case.

Standards of Professional Conduct & Guidance:

Professionalism:

Misrepresentation.

Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

Trust is a foundation in the investment profession. Do not make any misrepresentations or give false impressions. This includes oral and electronic communications. Misrepresentations include guaranteeing investment performance and plagiarism. Plagiarism encompasses using someone else’s work (e.g., reports, forecasts, charts, graphs, and spreadsheet models) without giving them credit.

Standards of Professional Conduct & Guidance:

Professionalism:
Misconduct.

Members and Candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.

CFA Institute discourages unethical behavior in all aspects of members’ and candidates’ lives. Do not abuse CFA Institute’s Professional Conduct Program by seeking enforcement of this Standard to settle personal, political, or other disputes that are not related to professional ethics.

Standards of Professional Conduct & Guidance:

Integrity of Capital Markets:

Material Nonpublic Information.

Members and Candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.

Information is material if its disclosure would impact the price of a security or if reasonable investors would want the information before making an investment decision. Ambiguous information, as far as its likely effect on price, may not be considered material. Information is nonpublic until it has been made available to the marketplace. An analyst conference call is not public disclosure. Selectively disclosing information by corporations creates the potential for insider-trading violations.

Mosaic theory: There is no violation when a perceptive analyst reaches an investment conclusion about a corporate action or event through an analysis of public information together with items of nonmaterial nonpublic information.

Standards of Professional Conduct & Guidance:

Integrity of Capital Markets:

Market Manipulation.

Members and Candidates must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.

This Standard applies to transactions that deceive the market by distorting the price-setting mechanism of financial instruments or by securing a controlling position to manipulate the price of a related derivative and/or the asset itself. Spreading false rumors is also prohibited.

Standards of Professional Conduct & Guidance:

Duties to Clients:

Loyalty, Prudence, and Care.

Members and Candidates must always act for the benefit of clients and place clients’ interests before their employer’s or their own interests. Members and Candidates must be loyal to clients, use reasonable care, and exercise prudent judgment.

Client interests always come first:

• Determine and comply with applicable fiduciary duty to clients.
• Exercise the prudence, care, skill, and diligence under the circumstances that a person acting in a like capacity and familiar with such matters would use.
• Manage pools of client assets in accordance with the terms of the governing documents, such as trust documents or investment management agreements.
• Make investment decisions in the context of the total portfolio.
• Vote proxies in an informed and responsible manner. Due to cost benefit considerations, it may not be necessary to vote all proxies.
• Client brokerage, or soft dollars or soft commissions must be used to benefit the client.

Standards of Professional Conduct & Guidance:

Duties to Clients:

Fair Dealing.

Members and Candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities.

Do not discriminate against any clients when disseminating recommendations or taking investment action. Fairly does not mean equally. In the normal course of business, there will be differences in the time e-mails, faxes, and so forth are received by different clients. Different service levels are okay, but they must not negatively affect or disadvantage any clients. Disclose the different service levels to all clients and prospects, and make premium levels of service available to all who wish to pay for them.

Give all clients a fair opportunity to act upon every recommendation. Clients who are unaware of a change in a recommendation should be advised before the order is accepted. Treat clients fairly in light of their investment objectives and circumstances.

Treat both individual and institutional clients in a fair and impartial manner. Members and Candidates should not take advantage of their position in the industry to disadvantage clients.

Standards of Professional Conduct & Guidance:

Duties to Clients:

Suitability.

1. When Members and Candidates are in an advisory relationship with a client, they must:
   1. Make a reasonable inquiry into a client’s or prospective clients’ investment experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this information regularly.
   2. Determine that an investment is suitable to the client’s financial situation and consistent with the client’s written objectives, mandates, and constraints before making an investment recommendation or taking investment action.
   3. Judge the suitability of investments in the context of the client’s total portfolio.
2. When Members and Candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must make only investment recommendations or take investment actions that are consistent with the stated objectives and constraints of the portfolio.

Standards of Professional Conduct & Guidance:

Duties to Clients:

Performance Presentation.

When communicating investment performance information, Members or Candidates must make reasonable efforts to ensure that it is fair, accurate, and complete.

Members must avoid misstating performance or misleading clients/prospects about investment performance of themselves or their firms, should not misrepresent past performance or reasonably expected performance, and should not state or imply the ability to achieve a rate of return similar to that achieved in the past.

Standards of Professional Conduct & Guidance:

Duties to Clients:

Preservation of Confidentiality.

Members and Candidates must keep information about current, former, and prospective clients confidential unless:

• The information concerns illegal activities.
• Disclosure is required by law.
• The client or prospective client permits disclosure of the information.

If illegal activities by a client are involved, members may have an obligation to report the activities to authorities. The confidentiality Standard extends to former clients as well.

The requirements of this Standard are not intended to prevent Members and Candidates from cooperating with a CFA Institute Professional Conduct Program (PCP) investigation.

Standards of Professional Conduct & Guidance:

Duties to Employers:
Loyalty.

Members and Candidates must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer.

Members must not engage in any activities which would injure the firm, deprive it of profit, or deprive it of the advantage of employees’ skills and abilities. Always place client interests above interests of employer. There is no requirement that the employee put employer interests ahead of family and other personal obligations; it is expected that employers and employees will discuss such matters and balance these obligations with work obligations.

Independent practice for compensation is allowed if a notification is provided to the employer fully describing all aspects of the services.

Leaving an employer: Members must continue to act in their employer’s best interests until resignation is effective.

Whistle blowing: There may be isolated cases where a duty to one’s employer may be violated in order to protect clients or the integrity of the market, and not for personal gain.

Standards of Professional Conduct & Guidance:

Duties to Employers:

Additional Compensation Arrangements.

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

Compensation includes direct and indirect compensation from a client and other benefits received from third parties. Written consent from a member’s employer includes e-mail communication.

Standards of Professional Conduct & Guidance:

Duties to Employers:

Responsibilities of Supervisors.

Members and Candidates 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.

Members must take steps to prevent employees from violating laws, rules, regulations, or the Code and Standards and make reasonable efforts to detect violations.

Understand that an adequate compliance system must meet industry standards, regulatory requirements, and the requirements of the Code and Standards. Members with supervisory responsibilities have an obligation to bring an inadequate compliance system to the attention of firm’s management and recommend corrective action. While investigating a possible breach of compliance procedures, it is appropriate to limit the suspected employee’s activities.

Standards of Professional Conduct & Guidance:

Investment Analysis, Recommendations, and Actions:

Diligence and Reasonable Basis.

Members and Candidates must:

1. Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions.
2. Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action.

The application of this Standard depends on the investment philosophy adhered to, members’ and candidates’ roles in the investment decision-making process, and the resources and support provided by employers. These factors dictate the degree of diligence, thoroughness of research, and the proper level of investigation required.

Using secondary or third-party research: See that the research is sound.

Group research and decision making: Even if a member does not agree with the independent and objective view of the group, he does not necessarily have to decline to be identified with the report, as long as there is a reasonable and adequate basis.

Standards of Professional Conduct & Guidance:

Investment Analysis, Recommendations, and Actions:

Communication with Clients and Prospective Clients.

Members and Candidates must:

• Disclose to clients and prospective clients the basic format and general principles of the investment processes used to analyze investments, select securities, and construct portfolios and must promptly disclose any changes that might materially affect those processes.
• Use reasonable judgment in identifying which factors are important to their investment analyses, recommendations, or actions and include those factors in communications with clients and prospective clients.
• Distinguish between fact and opinion in the presentation of investment analysis and recommendations.

Members must distinguish between opinions and facts and always include the basic characteristics of the security being analyzed in a research report. Members must illustrate to clients and prospects the investment decision-making process utilized. The suitability of each investment is important in the context of the entire portfolio. All means of communication are included here, not just research reports.

Standards of Professional Conduct & Guidance:

Investment Analysis, Recommendations, and Actions:

Record Retention.

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

Members must maintain research records that support the reasons for the analyst’s conclusions and any investment actions taken. Such records are the property of the firm. If no other regulatory standards are in place, CFA Institute recommends at least a 7-year holding period.

Standards of Professional Conduct & Guidance:

Conflicts of Interest:

Disclosure of Conflicts.

Members and Candidates must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity, or interfere with respective duties to their clients, prospective clients, and employer.

Members and Candidates must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively.

The requirement that all potential areas of conflict be disclosed allows clients and prospects to judge motives and potential biases for themselves. Disclosure of broker/dealer market-making activities would be included here. Board service is another area of potential conflict.

The most common conflict which requires disclosure is actual ownership of stock in companies that the member recommends or that clients hold.

Members must give the employer enough information to judge the impact of the conflict. Take reasonable steps to avoid conflicts, and report them promptly if they occur.

Standards of Professional Conduct & Guidance:

Conflicts of Interest:

Priority of Transactions.

Investment transactions for clients and employers must have priority over those in which a Member or Candidate is a beneficial owner.

Client transactions take priority over personal transactions and transactions made on behalf of the member’s firm. Personal transactions include situations where the member is a beneficial owner. Personal transactions may be undertaken only after clients and the member’s employer have had an adequate opportunity to act on a recommendation. Note that family member accounts that are client accounts should be treated just like any client account—they should not be disadvantaged.

Standards of Professional Conduct & Guidance:

Conflicts of Interest:
Referral Fees.

Members and Candidates must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received by, or paid to, others for the recommendation of products or services.

Members must inform employers, clients, and prospects of any benefit received for referrals of customers and clients, allowing them to evaluate the full cost of the service as well as any potential impartiality. All types of consideration must be disclosed.

Standards of Professional Conduct & Guidance:

Responsibilities as a CFA Institute Member or CFA Candidate:

Conduct as Members and Candidates in the CFA Program.

Members and Candidates must not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation or the integrity, validity, or security of the CFA examinations.

This Standard applies to conduct which includes:

• Cheating on the CFA exam or any exam.
• Not following rules and policies of the CFA program.
• Giving confidential information on the CFA program to Candidates or the public.
• Improperly using the designation to further personal and professional goals.
• Misrepresenting information on the Professional Conduct Statement (PCS) or the CFA Institute Professional Development Program.

Members and Candidates are not precluded from expressing their opinions regarding the exam program or CFA Institute.

Standards of Professional Conduct & Guidance:

Responsibilities as a CFA Institute Member or CFA Candidate:

Reference to CFA Institute, the CFA Designation, and the CFA Program.

When referring to CFA Institute, CFA Institute membership, the CFA designation, or candidacy in the CFA Program, 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.

Members must not make promotional promises or guarantees tied to the CFA designation. Do not overpromise individual competence or investment results in the future (i.e., higher performance, less risk, etc.).

Members must satisfy these requirements to maintain membership: 1) sign PCS annually, and 2) pay CFA Institute membership dues annually. If they fail to do this, they are no longer active members.

There is no partial designation. It is acceptable to state that a Candidate successfully completed the program in three years, if in fact they did, but claiming superior ability because of this is not permitted.

The Chartered Financial Analyst and CFA marks must always be used either after a charterholder’s name or as adjectives, but not as nouns, in written and oral communications.

Ethical and Professional Standards:

Guidance for Standards I–VII

1. Demonstratethe application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity.
2. Distinguishbetween conduct that conforms to the Code and Standards and conduct that violates the Code and Standards.
3. Recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct.

In the past, a variety of reporting procedures were misleading at best. Some of these misleading practices included:

• Representative accounts: Showing a top-performing portfolio as representative of firm’s results.
• Survivorship bias: Excluding weak performance accounts that have been terminated.
• Varying time periods: Showing performance for selected time periods with outstanding returns.

GIPS are a set of ethical principles based on a standardized, industry-wide approach. Investment firms can voluntarily follow GIPS in their presentation of historical investment results to prospective clients. These standards seek to avoid misrepresentations of performance.

GIPS apply to investment management firms and are intended to serve prospective and existing clients of investment firms. GIPS allow clients to more easily compare investment performance among investment firms and have more confidence in reported performance.

A composite is a grouping of individual discretionary portfolios representing a similar investment strategy, objective, or mandate. Examples of possible composites are "Large Capitalization Growth Stocks" and "Investment Grade Domestic Bonds." Reporting on the performance of composites gives clients and prospects information about the firm’s success in managing various types of securities or results for various investment styles.

A composite, such as International Equities, must include all portfolios (current and past) that the firm has managed in accordance with this particular strategy. The firm should identify which composite each managed portfolio is to be included in before the portfolio’s performance is known. This prevents firms from choosing portfolios to include in a composite in order to create composites with superior returns.

Firms are encouraged to pursue independent verification. Verification applies to the entire firm’s performance measurement practices and methods, not a selected composite.

Verified firms should include the following disclosure language:

"[Insert name of firm] has been verified for the periods [insert dates] by [name of verifier]. A copy of the verification report is available upon request."

• Obtain global acceptance of calculation and presentation standards in a fair, comparable format with full disclosure.
• Ensure consistent, accurate investment performance data in areas of reporting, records, marketing, and presentations.
• Promote fair competition among investment management firms in all markets without unnecessary entry barriers for new firms.
• Promote global "self regulation."

• An investment management firm must define its "firm."
• GIPS are ethical standards for performance presentation which ensure fair representation of results and full disclosure.
• Include all actual fee-paying, discretionary portfolios in composites for a minimum of five years or since firm or composite inception.
• Firms are required to use certain calculation and presentation standards and make specific disclosures.
• Input data must be accurate.
• GIPS contain both required and recommendedprovisions.
• Firms are encouraged to present all pertinent additional and supplemental information.
• There is no such thing as partial compliance.
• For cases in which a local or country-specific law or regulation conflicts with GIPS, follow the local law, but disclose the conflict.
• Certain "recommendations" may become "requirements" in the future.
• Supplemental "private equity" and "real estate" provisions contained in the GIPS standards are to be applied to those asset classes.

• To apply GIPS on a firm-wide basis.
• Firm must be defined as a distinct business unit.
• Total firm assets includes total market value of discretionary and nondiscretionary assets, including fee-paying and non-fee-paying accounts.
• Include asset performance of sub-advisors, as long as the firm has discretion over sub-advisor selection.
• If a firm changes its organization, historical composite results cannot be changed.

• Include the broadest definition of the firm, including all geographical offices marketed under the same brand name.

• Document, in writing, policies and procedures the firm uses to comply with GIPS.

• Once GIPS requirements have been met, the following compliance statement must be used:
  • "[Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS^®)."
• There is no such thing as partial compliance.
• There are to be no statements referring to calculation methodologies used in a composite presentation as being "in accordance with GIPS...etc."
• Similarly, there should be no statements referring to the performance of an individual, existing client as being "calculated in accordance with GIPS...etc." unless a compliant firm is reporting results directly to the client.

• Firms must provide a compliant presentation to allprospects (prospect must receive presentation within the previous 12 months).
• Provide a composite list and composite description to all prospects that make a request. List discontinued composites for at least five years.
• Provide a compliant presentation and a composite description for any composite included on the firm’s list to clients requesting it.
• When jointly marketing with other firms, if one of the firms claims GIPS compliance, be sure it is clearly defined as separate from noncompliant firms.
• Firms are encouraged to comply with recommendations and must comply with all requirements. Be aware of updates, guidance statements, etc.

Scope of GIPS: 

Definition of firm:

• In order to properly conform to GIPS, the "firm" must be clearly identified—it may be an actual subsidiary, business entity, or division.
• It must be held out to clients and prospects as a distinct business entity.

Scope of GIPS: 

Historical performance record:

• Minimum of five years of historical data are required, or since firm or composite inception.
• After the five years has been achieved, the firm must add one additional year of performance each year up to a minimum of ten years.
• Non-GIPS-compliant information may be linked to compliant history. However, no noncompliant performance can be presented after January 1, 2000. Firms must clearly identify the noncompliant portion of results.
• If a firm has previously claimed compliance with an Investment Performance Council-endorsed Country Version of GIPS (CVG), it is granted reciprocity to claim compliance with GIPS for historical periods prior to January 1, 2006.

Scope of GIPS: 

Compliance:

• The GIPS standards are newly revised and effective January 1, 2011. All presentations for performance after this date must use the requirements of the revised GIPS.
• All GIPS requirements must be met in order for a firm to claim to be GIPS-compliant.
• Internal compliance checks to verify accurate GIPS results are encouraged.

Firms that previously presented performance in compliance with a particular Country Version of GIPS (CVG) may claim GIPS compliance for any CVG-compliant results prior to January 1, 2006. Firms that report such CVG-compliant performance data must continue to include that performance data in subsequent GIPS-compliant presentations until a minimum of ten years of compliant performance is presented.

In any cases where country-specific regulations conflict with GIPS, firms must follow the applicable country-specific regulations but must also disclose the nature of the conflict with GIPS.

0. Fundamentals of Compliance:These are issues for firms to consider when claiming GIPS compliance (e.g., firm definition).
1. Input Data:Input data should be consistent in order to establish full, fair, and comparable investment performance presentations.
2. Calculation Methodology:Certain uniform methodologies are required for portfolio and composite return calculations.
3. Composite Construction:Creation of meaningful, asset-weighted composites is important to achieve a fair presentation.
4. Disclosures:Certain information must be disclosed about the presentation and the policies adopted by the firm.
5. Presentation and Reporting:Investment performance must be presented according to GIPS requirements, and when appropriate, other firm-specific information should be included.
6. Real Estate:These provisions apply to all real estate investments regardless of the level of control the firm has.
7. Private Equity:These must be valued according to the GIPS Private Equity Valuation Principles, unless it is an open-end or evergreen fund (which must follow regular GIPS).
8. Wrap Fee/Separately Managed Account (SMA) Portfolios: Certain special GIPS standards apply to these.