As investment professionals, upholding high ethical standards is crucial for building trust with clients and the public. The CFA Institute Code of Ethics and Standards of Professional Conduct provide guidance through 6 ethical principles and 7 professional standards. Specifically, Standards I-VII cover responsibilities of competence, independence and objectivity, duties to clients, duties to employers, investment analysis and actions, conflicts of interest, and duties to the profession. With increased complexity in financial markets, these standards help investment professionals analyze dilemmas to make principled choices that ultimately benefit society.
Standard I: Maintain knowledge, skill and professionalism
Standard I sets the expectation that investment professionals will maintain and improve their professional competence to provide services with integrity and professionalism. This requires ongoing development of knowledge and skills to keep pace with the evolving investment industry. Additionally, investment professionals should encourage others to uphold ethical and professional standards that reflect credit on individuals and the profession.
Standard II: Ethically manage capital markets participation
Standard II relates to ethical obligations regarding capital market functioning and information use. Investment firms and professionals must not engage in market manipulation or other unfair practices. They should seek to promote efficient capital markets while avoiding actions that detract from market integrity. Use of material nonpublic or confidential information for personal gain is strictly prohibited.
Standard III: Act in clients’ best interests
Standard III covers the duty of loyalty to clients including prudence, reasonable care, and fair/full disclosure of information useful for investment decisions. Investment professionals must give priority to client interests, seek best execution of client transactions, and provide oversight on delegated responsibilities. A regular review schedule ensures portfolios align with governing documents.
Standard IV: Act ethically within firms
Standard IV relates to ethical requirements within employing firms. Investment professionals must act with reasonable care and exercise independent professional judgement. Beyond individual actions, those in supervisory roles should promote compliance and make reasonable efforts to prevent, detect and correct illegal/unethical conduct of others.
Standards V-VII: Maintain independence/transparency
The remaining standards aim to avoid or manage conflicts of interest and promote market transparency. Standard V requires factual, transparent, and timely communications. Recommendations must have reasonable grounds with disclosed risks/limitations. Standard VI mandates full disclosure of special relationships and interests that might influence judgement. Lastly, Standard VII covers conduct regarding CFA Institute programs and prohibition of actions undermining their content.
In an interconnected global financial system dependent on trust, Standards I-VII guide investment professionals to act ethically, ultimately benefiting society. Adhering to these codes of conduct promotes efficiency and sustainability of capital markets.