Cfa Level1 Note – Ethics and Professional Standards

Ethical and overlord bills 1. scratch of Ethics A. State the quaternity components of the ordinance of Ethics. Members of AIMR shall 1. Act with uprightness, competency, dignity, and in an good manner when embraceing with the public, nodes, prospects, employers, employees, and fellow instalments. 2. impose and encourage early(a)s to substantiate in a overlord and ethical manner that bequeath reflect credit on genus Phalluss and their profession. 3. strain to principal(prenominal)tain and improve their competence and the competence of others in the profession. . work sensitive wield and exercise independent professional judgment. to put in measuring rods of Practice 2-I. regulations of master contract I. profound Responsibilities A. Know the laws and rules. Standard Maintain knowledge of and comply with all relevant laws, rules, and regulations (including AIMRs compute of Ethics and Standards of paid Conduct) of all government, government agenc y, regulatory organization, licensing agency, or professional association governing the particles professional activities. submission Members quarter acquire and maintain knowledge to the highest degree relevant laws, rules, and regulations by Maintaining current files on applicable statutes, rules, and regulations. Keeping in orchest grazeed. Reviewing indite deference procedures on a regular basis. B. Dont break short or help others break the law. Standard Not knowingly spellicipate or assist in either ravishment of such(prenominal) laws, rules, or regulations. conformity When members funny a guest or a colleague of planning or engaging in ongoing illegal activities, members should fork surface the compeverying actions Consult counsel to watch over if the consider is, in fact, illegal. Disassociate from whatsoever illegal or unethical activity. When members hand commonsensical grounds to believe that a clients or employees activities be illegal or une thical, the members should split from these activities and urge their theater to attempt to express the perpetrator to cease such activity. 2-II. Standards of schoolmaster Conduct II. Relationships with and Responsibilities to the Profession A. Use of superior Designation II(A. 1) AIMR members whitethorn reference their social station only in a self-respecting and rational manner.The example of the reference may be accompanied by an close comment of the requirements that have been met to bind social station in these organizations. II(A. 2) Those who have earned the in good order to routine the Chartered Financial psychoanalyst denomination may go for the tag Chartered Financial Analyst or CFA and ar encouraged to do so, moreover only in a proper, dignified, and judicious manner. The use of the designation may be accompanied by an straight explanation of the requirements that have been met to obtain the right to use the designation. II(A. ) Candidates in the CFA Program, as defined in the AIMR Bylaws, may reference their participation in the CFA Program, but the reference moldiness distinctly estate that an individual is a prognosis in the CFA Program and cannister non imply that the aspect has procured every type of partial designation. B. master copy Mis calculate II(B. 1) Members shall non engage in whatever professional conduct involving double-tonguedy, fraud, deceit, or misre initiation or draw out either act that reflects adversely on their honesty, trustworthiness, or professional competence.II(B. 2) Members and candidates shall not engage in some(prenominal) conduct or commit all act that compromises the integrity of the CFA designation or the integrity or validness of the examinations leading to the award of the right to use the CFA designation. Compliance 1. thread clear that dishonest personal behavior reflects poorly on the profession. 2. Adopt a code of morals to which every employee moldiness subscribe. 3. Conduct footing checks on potential employees to tell that they be of good character and eligible to drift in the enthronement industry.C. rampart against buccaneering Standard Members shall not copy or use, in substantially the akin form as the original, hearty prepargond by another without acknowledging and identifying the name of the author, publisher, or obtain of such substantial. Members may use, without acknowledgment, factual nurture published by recognized pecuniary and statistical inform service or similar sources. ? ? Compliance 1. Maintain copies of worldlys that were relied on in preparing the research promulgate. 2.Attribute quotations (and projections, tables, statistics, models, and methodologies) employ other than recognized financial and statistical insurance coverage go. 3. Attribute paraphrases and summaries of sensible prepargond by others. 2-III. Standards of professional person Conduct III. Relationships and Responsibilities to the Emp loyer A. Inform your Employer of the Code and Standards III(A. 1) Members shall inform their employer in piece of music, through their machinate supervisor, that they are obligated to comply with the Code and Standards and are subject to disciplinary sanctions for rapes thereof.III(A. 2) Members shall deliver a copy of the Code and Standards to their employer if the employer does not have a copy. Compliance Members should state their supervisor in writing of the Code and Standards and the members responsibility to follow them. The member should withal suggest that the employers lard the Code and Standards and disseminate it throughout the buckram. If the employer has publically acknowledged, in writing, that they have adopted AIMRs Code and Standards as part of the firms policies then the member acquire not give the formal written notification as undeniable by III(A).B. Duty to Employer Standard Members shall not assay any independent practice that could guide in reco mpense or other benefit in competition with their employer un slight they obtain written consent from both their employer and the persons or entities for whom they undertake independent practice. ? ? Compliance 1. Members who plan to engage in independent practice for recompense should go forth written statements to their employer describing the types of operate they lead perform, the expected duration of the run, and the salary they will receive. . Members should also publish to their potential clients the identity of their employer, the fact that they are do independently of the employer, and what their employer would charge for similar services. 3. Members desire juvenile employment should not speck existing clients or potential clients prior(prenominal) to leaving their employer or take records/files to their new employer without the written permission of the previous employer. C. accept Conflicts between you and your Employer III(C. 1) Members shall relegate to th eir employer all matters, including unspoiled sufferership of securities or other enthronisations, that moderately could be expected to interfere with their indebtedness to their employer or mogul to establish deaf(p) and objective tributes. III(C. 2) Members shall comply with any prohibitions on activities imposed by their employer if a struggle of interest exists.Compliance Members should report to their employers any advantageous interest and any fussy relationships, like corporate directorships, that may fair be considered a conflict of interest with their responsibilities. Members should also discuss the situation with their firms residency officer to begin with pickings any action that could lead to a conflict of interest. D. key out Additional allowance from Outside the Firm to your Employer Standard Members shall disclose to their employer in writing all monetary ompensation or other benefits that they receive for their services that are in increment to fee or benefits conferred by a members employer. Compliance Members should get at an quick written report to their employer specifying any compensation or benefits they receive or throw to receive for services in addition to what their employer is to give them. This written report should state the equipment casualty of any oral or written agreement, the amount of compensation, and the duration of the agreement. E. Responsibilities of SupervisorsStandard Members with supervisory responsibilities, office, or the ability to influence the conduct of others shall exercise reasonable supervision over those subject to their supervision or authority to keep back any violation of applicable statutes, regulation, or provisions of the Code and Standards. In so doing, members are entitled to confide on reasonable procedures designed to hear and prevent such violations. ? ? Compliance The supervisor and the conformity officer should 1. Disseminate the shape procedures. 2. Update the p rocedures as necessary. 3. Educate the ply and issue periodic reminders. . Incorporate a professional conduct evaluation into the employees slaying come off. 5. Review employee actions to ensure configuration and identify violators, initiating procedures once a violation has occurred. A supervisor should respond straighta stylus to the violation by conducting a gross(a) investigation, and placing limitations on the wrongdoer until the investigation is complete. 2-IV. Standards of Professional Conduct IV. Relationships with and Responsibilities to Clients and Prospects A. The Investment Process IV(A. 1) comely Basis and Re launchings. Members shall a.Exercise diligence and thoroughness in make enthronisation recommendations or in winning investing actions. b. Have a reasonable and fit basis, supported by subdue research and investigation, for such recommendations or actions. c. seduce reasonable and diligent drivings to avoid any material misrepresentation in any r esearch report or investing recommendation. d. Maintain appropriate records to support the erudition of such recommendations or actions. Compliance 1. see the enthronization fundss introductory characteristics (records must show the characteristics of the investment funds and the basis for the recommendation). . snap the needs of the portfolio (includes the clients needs, as well as the needs of the hail portfolio). 3. Maintain files to support investment recommendations. pic IV(A. 2) look for Reports. Members shall a. Use reasonable judgment regarding the inclusion or exclusion of relevant factors in research reports. b. particular(a)ize between facts and opinions in research reports. c. Indicate the base characteristics of the investment involved when preparing for public distribution a research report that is not directly related to a specific portfolio or client.Compliance Members should consider including the pursuit discipline in research reports 1. Expected annu al range of return, calculated on a summation return basis. 2. Annual income expectations. 3. received rate of return or yield. 4. The degree of disbelief associated with the cash flows, and other assay factors. 5. The investments tradeability or liquidity. pic IV(A. 3) Independence and Objectivity. Members shall use reasonable care and judgment to achieve and maintain independence and objectivity in reservation investment recommendations or taking investment actions. Compliance 1. Protect integrity of opinions.Reports should reflect the analysts impartial opinion. 2. wear out all corporate relationships (i. e. , directorships, underwriting arrangements or acting as a market maker). 3. Disclose personal holdings and near ownerships. 4. become a dependant refer. 5. Restrict special cost arrangements. Members should pay for their commercial theodolite and hotel charges. 6. restrain gifts (US$100 is the maximum welcome value for a gift or gratuity). 7. Restrict investm ents (strict limits should be imposed on private placements). 8. Review procedures (supervise the personal investment activities of the employees).B. Interactions with Clients and Prospects IV(B. 1) Fiduciary Duties In relationships with clients, members shall use occurrence care in de nameine applicable fiduciary indebtedness and shall comply with such duty as to those persons and interests to whom the duty is owed. Members must act for the benefit of their clients and place their clients interests before their own. Compliance 1. Follow all applicable rules and laws. 2. impart the investment objectives of the client. 3. Diversify. 4. Deal evenhandedly with all clients with respect to investment actions. 5. Disclose all possible conflicts of interest. . Disclose compensation arrangements. 7. Preserve the confidentiality of client t distributivelying. 8. Maintain dedication to the plan beneficiaries. pic IV(B. 2) Portfolio Investment Recommendations and Actions Members shall a . Make a reasonable inquiry into a clients financial situation, investment experience, and investment objectives prior to making any investment recommendations and shall update this reading as necessary, but no less frequently than annually, to allow the members to adjust their investment recommendations to reflect changed circumstances. b.Consider the appropriateness and suitability of investment recommendations or actions for each portfolio or client (including the needs and circumstances of the portfolio or client, the raw material characteristics of the investment involved, and the basic characteristics of the total portfolio). c. complete between facts and opinions in presenting recommendations. d. Disclose to clients and prospects the basic format and general principles of the investment processes by which securities are selected and portfolios are constructed and shall promptly disclose to clients and prospects any changes that might significantly come upon those processe s.Compliance Know basic nature of your client know objectives and constraints. pic IV(B. 3) Fair Dealing Members shall deal fairly and objectively with all clients and prospects when disseminating investment recommendations, disseminating material changes in prior investment recommendations, and taking investment action. Compliance 1. Limit the number of people privy to recommendations and changes. 2. edit the time frame between insane asylum and dissemination. 3. Publish personnel guidelines for pre-dissemination. 4. Simultaneous dissemination. 5. Establish rules about employee handicraft activities. . Establish procedures for determining material changes. 7. Maintain a itemisation of clients and their holdings. 8. Develop trade allocation procedures. 9. Make sure one account is not being used to bail out other accounts. 10. If the firm offers differing levels of service, this fact should be disclosed to all clients. pic IV(B. 4) Priority of minutes Clients and employers shall have priority over legal proceeding in securities or other investments of which a member is the adept owner so that such personal transactions do not operate adversely to their clients or employers interests.If members make a recommendation regarding the bribe or sale of a hostage or other investment, they shall give their clients and employer comely opportunity to act on the recommendation before acting on their own behalf. Compliance 1. restrict personal transactions. 2. Define covered investments. 3. Limit the number of entre persons. dismission Walls should be built to prevent the flow of instruction from one collection or department to other groups at heart the firm. 4. Define prohibited transactions. The text specifically mentions equity based IPOs. . Establish reporting procedures and prior-clearance requirements. 6. Ensure that procedures will be obligate and establish disciplinary procedures. pic IV(B. 5) Preservation of Confidentiality Members shall conduct t he confidentiality of culture guided by clients, prospects, or employers concerning matters inwardly the scope of the client-member, prospect-member, or employer-member relationship unless the member receives information concerning illegal activities on the part of the client, prospect, or employer.Compliance The simplest and most effective way to comply is to avoid discussing any information received from a client yet to colleagues working on the same project. pic IV(B. 6) Prohibition against Misrepresentation Members shall not make any statements, orally or in writing that misrepresent a. the services that they or their firms are capable of performing. b. their qualifications or the qualifications of their firm. c. the members academic or professional credentials.Members shall not make or imply, orally or in writing, any assurances or guarantees regarding any investment save to communicate accurate information regarding the terms of the investment instrument and the issuers o bligations under the instrument. Compliance Firms can provide guidance to employees who make written or oral presentations to clients or prospects by providing a written list of the firms available services and a description of the firms qualifications. pic IV(B. ) revealing of Conflicts to Clients and Prospects Members shall disclose to their clients and prospects all matters, including beneficial ownership of securities or other investments, that reasonably could be expected to impair the members ability to make unbiased and objective recommendations. Compliance Members should report to their employers, clients, and prospects any material beneficial interest they may have in securities, corporate directorships, or other special relationships they may have with the companies they are recommending.Members should make the disclosures before they make any recommendations or take any investment actions regarding these investments. pic IV(B. 8) Disclosure of Referral Fees Members shall disclose to clients and prospects any favor or benefit received by the member or delivered to others for the recommendation of any services to the client or prospect. Compliance 1. Disclose all agreements in writing to any client or prospect who has been referred. 2. set forth in the disclosure the nature of the consideration and the estimated dollar value of the consideration. . Consult a supervisor and legal counsel concerning any likely arrangement regarding referral fees. 2-V. Standards of Professional Conduct V. Relationships with and Responsibilities to the Investing Public A. Prohibition against Use of Material Nonpublic Information Standard Members who possess material private information related to the value of a security measure shall not trade or cause others to trade in that security if such trading would breach a duty or if the information was misappropriated or relates to a tender offer.If members receive material nonpublic information in confidence, they shall not breach that confidence by trading or causing others to trade in securities to which such information relates. Members shall make reasonable efforts to achieve public dissemination of material nonpublic information disclosed in breach of a duty. Compliance Fire walls, minimum elements are 1. Control over interdepartmental communications. 2. Review employee trading against restricted lists. 3. Restrict trademarked trading time the firm is in possession of material nonpublic information.Additional procedures 1. Restrict personal and proprietary employee trading. 2. Place securities on a restricted list when the firm has material nonpublic information. 3. Disseminate material nonpublic information only to those with a need to know. 4. limit a supervisor who decides when trading is appropriate. B. surgery presentation Standard 1. Members shall not make any statements, orally or in writing, that misrepresent the investment performance that they or their firms have accomplished or can reasonably be expected to achieve. 2.If members communicate individual or firm performance information directly or indirectly to clients or prospective clients, or in a manner mean to be received by clients or prospective clients, members shall make every reasonable effort to assure that such performance information is a fair, accurate, and complete presentation of such performance. Compliance Misrepresentation about the investment performance of the firm can be avoided if the member maintains data about the firms investment performance in written form. Investment accounts should be feature into entangleds by investment class and risk groups. Standards of Practice Handbook a found a thorough knowledge of the Standards of Professional Conduct by recognizing and applying the Standards to specific situations. This is an operation of many opposite morals concepts to assorted scenarios. After having learned the ethics material in earlier learning outcomes you will be able to apply these concepts to unhomogeneous scenarios as you take the quizzes. b Distinguish between conduct that conforms to the Code and the Standards and conduct that violates the Code and the Standards.This requires looking at different scenarios and possibly applying several ethics concepts to each scenario. After you learn and understand the ethics concepts you will be able to apply them to specific situations through the quizzes. 4 AIMR mathematical operation initiation Standards Handbook a apologise the goals of the AIMR-PPS Standards. The Standards have been designed to live up to the hobby goals To achieve greater uniformity and comparability among performance presentations. To improve the service offered to investment management clients. To enhance the professionalism of the industry. To bolster the legal opinion of self-regulation. Note The Presentation Standards are intended primarily to be performance presentation standards, not performance measurement standar ds. Portions of the AIMR-PPS are required while some are recommended. AIMR strongly encourages the adoption of both required and recommended components of the Standards. Also, performance presentations may have to provide more than the minimum requirements of the AIMR-PPS to meet the generous intent of the Standards. b Identify the parties touch on by the AIMR-PPS standards. Firms. The PPS Standards are voluntary. The PPS are widely recognized as fair and accurate reporting guidelines for investment performance. AIMR Members, CFA Charterholders, and CFA Candidates. The PPS are not explicitly incorporated into the AIMR Code and Standards of Professional Conduct. The PPS does, however, help insure that members, charterholders and candidates are in compliance with Standard V(B), Performance Presentation, so that they will make no material misrepresentation of their performance results. Prospective and Current Clients.The PPS helps clients compare investment performance across fir ms. The PPS helps clients evaluate their investment managers performance. c Identify the four main topics of the AIMR-PPS standards (i. e. , creation and maintenance of composites, calculation of returns, presentation of results, and disclosures). Creation and maintenance of composites. A composite is a set of portfolios that follow the same investment style. Calculation of returns. Presentation of results. Disclosures. d Identify what constitutes a valid assign of compliance with the AIMR-PPS standards.To claim compliance, firms must meet all composite, calculation, presentation, and disclosure requirements. Adherence to the basic requirements, however, does not guarantee fair and adequate performance reporting. Compliance with the standards also requires bond certificate to all applicable laws and regulations. If the firm has do every reasonable effort to ensure that their performance presentation is in compliance with the PPS, the firm can use the following legend? XYZ Fir m has prepared and presented this report in compliance with the Performance Presentation Standards of the Association for Investment Management and Research.AIMR has not been involved with the preparation or review of this report. Any use of the mark AIMR shut as shown above is prohibited. If results are not in full compliance, performance cannot be presented as Being in compliance with the AIMR-PPS except for Statements referring to the calculation methodology used in a presentation as being in accordance or compliance with AIMR-PPS standards are prohibited. AIMR members who misuse the term AIMR, AIMR-PPS standards, or the Compliance Statement are subject to disciplinary sanctions under Standard V(B).