Learning Outcomes
This article explains the CFA Institute Code of Ethics and its six fundamental principles in a way that prepares candidates for typical CFA Level 1 exam questions. It clarifies the purpose and structure of the Code, highlights why these ethical requirements are often stricter than local laws, and shows how they support trust and integrity in global capital markets. The article sets out what is required when acting with integrity, competence, diligence, and respect, and how to prioritize the interests of clients and the investment profession over personal advantage. It trains candidates to recognize conflicts of interest, assess the impact of using nonpublic information, and identify conduct that threatens market integrity. It also develops the ability to exercise independent professional judgement, evaluate whether behaviour by colleagues or employers meets the Code, and determine when it is necessary to escalate or report unethical practices. Finally, the article reinforces the expectation of lifelong professional development and the responsibility to encourage ethical conduct and competence in others within the workplace and the wider investment community.
CFA Level 1 Syllabus
For the CFA Level 1 exam, you are expected to understand and apply the CFA Institute Code of Ethics principles, which underpin the entire CFA curriculum and provide a framework for ethical conduct and decision-making by investment professionals. You may be asked to identify, explain, or recommend actions consistent with these principles, with a focus on the following syllabus points:
- Demonstrate understanding of the CFA Institute Code of Ethics and its six core principles
- Identify appropriate ethical conduct in common investment scenarios
- Apply the Code of Ethics to professional and investment-related decision making
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- Which principle of the CFA Institute Code of Ethics requires members to place the integrity of the profession and the interests of clients above their own?
- A CFA candidate learns of a possible conflict of interest between her employer and a client. Which principle should guide her immediate actions?
- True or false? Upholding market integrity is solely the responsibility of regulatory authorities, not individual CFA members.
- Briefly explain what is required by the commitment to lifelong professional competence under the Code of Ethics.
Introduction
The CFA Institute Code of Ethics sets the ethical basis for all CFA candidates and charterholders. You are expected to abide by these principles in all professional activities and decision contexts. The Code of Ethics is not simply a theoretical document; it guides conduct, strengthens trust in the capital markets, and sets standards for behaviour across the global investment profession. Each principle addresses a core commitment to ethical action, competence, client care, integrity, and the reputation of investment professionals.
Key Term: Code of Ethics
The core ethical framework developed by CFA Institute, comprising fundamental principles that guide the conduct of investment professionals.
The Six CFA Institute Code of Ethics Principles
The CFA Institute Code of Ethics is structured around six principles. All CFA candidates and charterholders must follow these standards at all times, regardless of local law or custom.
1. Act with Integrity, Competence, Diligence, Respect, and in an Ethical Manner
CFA members and candidates must act with integrity and professional competence. Diligence, respect for others, and ethical behaviour are required when dealing with clients, the public, employers, and colleagues.
Key Term: Integrity
Placing honesty and strong moral principles at the core of all professional actions.Key Term: Diligence
Demonstrating a thorough, conscientious approach to all professional tasks.
2. Place the Integrity of the Investment Profession and Clients' Interests Above Own Interests
You are required to put clients' interests and the reputation of the investment profession before personal gain. Decisions must never be guided by self-interest if they conflict with these higher duties.
Key Term: Client Interests
The obligation to prioritize the financial wellbeing and needs of clients in all recommendations and actions.
3. Use Reasonable Care and Exercise Independent Professional Judgement
You must use care when providing investment analysis, advice, or recommendations. This includes critically evaluating information, avoiding bias, and maintaining independence when forming judgements.
Key Term: Professional Judgement
Arriving at decisions and recommendations based on objective analysis and expert knowledge, independent of outside pressures.
4. Practice and Encourage Others to Act in a Professional and Ethical Manner
CFA members and candidates are also responsible for fostering ethical conduct in others—colleagues, employees, and within their organizations. This means modelling expected ethical standards and encouraging others to uphold them.
5. Uphold the Integrity and Proper Functioning of Capital Markets
Safeguarding the integrity, fairness, and efficiency of capital markets is a responsibility for every CFA member and candidate. You must avoid actions that could undermine market transparency or fairness, including market manipulation or misuse of confidential information.
Key Term: Market Integrity
The requirement to maintain fairness, transparency, and trust in the functioning of global capital markets.
6. Maintain and Improve Professional Competence
You must continuously work to develop and update your knowledge and skills. This is a lifelong requirement and extends to encouraging professional competence among others.
Key Term: Professional Competence
The ongoing responsibility to keep skills and knowledge current and effective in the investment profession.
Worked Example 1.1
An investment advisor is offered an incentive to direct client trades to a brokerage firm owned by her friend. Should she accept?
Answer:
No. The Code of Ethics requires members to place the interests of clients and the integrity of the investment profession above personal relationships or financial gain. Accepting such an incentive would create a conflict of interest and damage both client trust and profession integrity.
Worked Example 1.2
A portfolio manager discovers a colleague is using nonpublic information for personal trading advantage. What Code of Ethics principle is most relevant, and what should the manager do?
Answer:
Principle 5 (Uphold integrity and proper functioning of capital markets) is violated. The manager must not condone this conduct and should take appropriate steps to prevent, discourage, or report the unethical behaviour.
Exam Warning
Be aware: For CFA exam questions involving a dilemma between your own interests and those of clients or the profession, always act to protect client welfare and reputation of the investment profession, even if local laws seem less strict than the Code.
Summary
The CFA Institute Code of Ethics sets the basis for all professional behaviour expected of CFA charterholders and candidates. These six principles require putting client and market interests above personal gain, maintaining professional integrity and competence, and always modeling and encouraging ethical actions. Apply these in all decision-making contexts for exam situations and in practice.
Key Point Checklist
This article has covered the following key knowledge points:
- The CFA Institute Code of Ethics is organized as six core principles guiding all CFA members and candidates
- Members must act with integrity, competence, diligence, respect, and maintain an ethical approach
- Place the interests of clients and the investment profession before self-interest
- Use care and exercise independent, objective judgement when making recommendations
- Uphold and advance fairness, transparency, and trust in capital markets
- Commit to continual improvement and encourage others to act ethically and improve their professional knowledge
Key Terms and Concepts
- Code of Ethics
- Integrity
- Diligence
- Client Interests
- Professional Judgement
- Market Integrity
- Professional Competence