Table of Contents

How to Use the CFA Program Curriculum v Curriculum Development Process v Organization of the Curriculum vi Features of the Curriculum vi Designing Your Personal Study Program vii Feedback ix Ethical and Professional Standards Study Session 1 Code of Ethics and Standards of Professional Conduct 3 Reading 1 Code of Ethics and Standards of Professional Conduct 5 Preface 5 Evolution of the CFA Institute Code of Ethics and Standards of Professional Conduct 6 Standards of Practice Handbook 6 Summary of Changes in the Eleventh Edition 7 CFA Institute Professional Conduct Program 9 Adoption of the Code and Standards 10 Acknowledgments 10 Ethics and the Investment Industry 11 Why Ethics Matters 11 CFA Institute Code of Ethics and Standards of Professional Conduct 15 Preamble 15 The Code of Ethics 15 Standards of Professional Conduct 16 Reading 2 Guidance for Standards I VII 21 Standard I: Professionalism 21 Standard I(A) Knowledge of the Law 21 Guidance 21 Recommended Procedures for Compliance 26 Application of the Standard 27 Standard I(B) Independence and Objectivity 30 Guidance 30 Recommended Procedures for Compliance 35 Application of the Standard 36 Standard I(C) Misrepresentation 43 Guidance 43 Recommended Procedures for Compliance 46 Application of the Standard 48 Standard I(D) Misconduct 53 Guidance 53 Recommended Procedures for Compliance 54 Application of the Standard 54 Standard II: Integrity of Capital Markets 56 Standard II(A) Material Nonpublic Information 56 Guidance 56 Recommended Procedures for Compliance 60 Application of the Standard 63 Standard II(B) Market Manipulation 68 Guidance 68 Application of the Standard 69 Standard III: Duties to Clients 73 Standard III(A) Loyalty, Prudence, and Care 73 Guidance 73 Recommended Procedures for Compliance 77 Application of the Standard 78 Standard III(B) Fair Dealing 82 Guidance 82 Recommended Procedures for Compliance 84 Application of the Standard 86 Standard III(C) Suitability 90 Guidance 90 Recommended Procedures for Compliance 93 Application of the Standard 94 Standard III(D) Performance Presentation 97 Guidance 97 Recommended Procedures for Compliance 98 Application of the Standard 98 Standard III(E) Preservation of Confidentiality 101 Guidance 101 Recommended Procedures for Compliance 103 Application of the Standard 103 Standard IV: Duties to Employers 105 Standard IV(A) Loyalty 105 Guidance 105 Recommended Procedures for Compliance 109 Application of the Standard 109 Standard IV(B) Additional Compensation Arrangements 116 Guidance 116 Recommended Procedures for Compliance 116 Application of the Standard 116 Standard IV(C) Responsibilities of Supervisors 118 Guidance 118 Recommended Procedures for Compliance 120 Application of the Standard 122 Standard V: Investment Analysis, Recommendations, and Actions 126 Standard V(A) Diligence and Reasonable Basis 126 Guidance 126 Recommended Procedures for Compliance 130 Application of the Standard 130 Standard V(B) Communication with Clients and Prospective Clients 137 Guidance 138 Recommended Procedures for Compliance 140 Application of the Standard 141 Standard V(C) Record Retention 146 Guidance 146 Recommended Procedures for Compliance 147 Application of the Standard 148 Standard VI: Conflicts of Interest 149 Standard VI(A) Disclosure of Conflicts 149 Guidance 149 Recommended Procedures for Compliance 152 Application of the Standard 152 Standard VI(B) Priority of Transactions 157 Guidance 157 Recommended Procedures for Compliance 158 Application of the Standard 160 Standard VI(C) Referral Fees 162 Guidance 162 Recommended Procedures for Compliance 162 Application of the Standard 162 Standard VII: Responsibilities as a CFA Institute Member or CFA Candidate 165 Standard VII(A) Conduct as Participants in CFA Institute Programs 165 Guidance 165 Application of the Standard 167 Standard VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program 170 Guidance 170 Recommended Procedures for Compliance 174 Application of the Standard 174 Practice Problems 177 Solutions 187 Study Session 2 Ethical and Professional Standards in Practice 195 Reading 3 Application of the Code and Standards 197 Introduction 197 The Consultant 198 Mark Vernley 198 The Consulting Contract 199 Evaluation of the Situation 199 Pearl Investment Management (A) 202 Knowledge of the Law and Obligation to Obey 203 Responsibilities of Supervisors 204 Trading for Personal Accounts 204 Maintaining Confidential Client Information 205 Pearl Investment Management (B) 206 Responsibility of Candidates to Comply with the Code and Standards 206 Dealing with Clients 207 Errors in Client Accounts 208 Pearl Investment Management (C) 208 Proper Care and Independent Judgment 210 Use of Insider Information 210 Using the Research of Others 211 Reasonable Basis for a Research Opinion 211 Relevant Factors and Fact versus Opinion in Research Reports 212 Misrepresentation of Services and Performance Presentation 212 Practice Problems 214 Solutions 231 Reading 4 Asset Manager Code of Professional Conduct 239 Introduction 239 Adopting the Code and Claiming Compliance 241 Acknowledgement of Claim of Compliance to CFA Institute 241 General Principles of Conduct 241 Asset Manager Code of Professional Conduct 242 Loyalty to Clients 242 Investment Process and Actions 242 Trading 242 Risk Management, Compliance, and Support 243 Performance and Valuation 243 Disclosures 243 Appendix 6 Recommendations and Guidance 244 Loyalty to Clients 244 Investment Process and Actions 245 Trading 248 Risk Management, Compliance, and Support 250 Performance and Valuation 254 Disclosures 255 Practice Problems 259 Solutions 264 Glossary G-1 Index I-1