Code of Ethics:

A member shall maintain and improve their professional competence and strive to maintain and
improve the competence of other investment professionals;
Mentions duties to the public, clients, prospects, employers, employees and fellow members, with
no priority.
GIPS:
GIPS are the best way to comply with the Standard on performance presentation; however,
adoption of GIPS is voluntary;
I.

Professionalism
a. Knowledge of the Law:
If a MaC finds out that a report is prepared on misappropriated information, they
must seek advice from the company counsel to determine appropriate action,
dissociation is not enough;
A MaC that becomes aware of an illegal activity should consult counsel to
determine whether the conduct is in fact illegal and urge his firm to attempt to
persuade the perpetrator to cease such conduct. The standard does not require
reporting the activity to the appropriate governmental organization;
In the case of a firm operating in two countries, MaCs should maintain knowledge
of and comply with all applicable laws, rules and regulations in both countries as
well as the CFA Institute Standards of Professional Conduct because to abide by
the Standards, MaCs are required to apply the stricter of the three laws and
standards;
A MaC should seek advice from the firms counsel when he FEELS the law has been
violated, and follow it if he feels it is unbiased and competent. If the MaC KNOWS
the law has been violated, he should contact his supervisor;
This standard also covers integrity of capital markets to the extent there are laws
in place. This means for instance that an insider is bound by this standard not to
reveal insider information because there is a law against it and this standard
requires to know and respect the law;
The standard does not require MaCs to report violations of the law by other MaCs
to the CFA Institute;
Giving someone information that assists them in violating the law is a violation of
the standard, even if the MaC does not take the action or says I cannot suggest
this;
Informing the authorities of an illegal activity is not required but at the same time
does not constitute a violation of the standard on confidentiality;
b. Independence and Objectivity:
A MaC must refuse an offer of travel/entertainment from a firm he analyzes for his
employer;
An arrangement whereby a MaC receives additional compensation from a client
must be disclosed to the MaCs employer but not to the MaCs clients;
Gifts, benefits, compensation or consideration cannot be accepted if the purpose is
to influence or reward, but token items are okay. A MaC can attend a conference
organized by a broker but must pay for it himself;
A visit by an analyst to an out-of-the-way site may be paid for by a client company
host as long as the analyst can maintain objectivity. MaCs should encourage clients
to limit the use of corporate aircraft, but exceptions can be made if transportation
could not be otherwise available or would be inefficient. No disclosure required;

II.

III.

c. Misrepresentation:
If the data used is factual information that can be gathered from a variety of
sources, failing to report data source is NOT a violation;
Using excerpts from reports prepared by others without acknowledgements is a
violation;
Citing quotes attributed to investment experts without specific reference is a
violation;
Displaying the current yield curve without stating its source is NOT a violation;
Not updating a website following changes in analysis techniques and trading
procedures is a violation;
Truthfully stating I was able to earn 15% for a client last year is not a violation of
the misrepresentation standard (but is a violation of the presentation of
performance standard);
Using someone elses ideas without paraphrasing them or quoting them is not a
violation of the standard;
d. Misconduct:
Disclosing information about the CFA exam is a violation of this standard;
Integrity of Capital Markets
a. Material Nonpublic Information:
It is not improper to act on the basis overheard conversations that do not include
inside information, such as the fact that a brokerage house is about to issue a buy
recommendation on a stock;
A director of a firm possesses material nonpublic information and therefore must
be particularly concerned about complying with the Material Nonpublic
Information standard;
Material nonpublic information received from an insider who is not breaching his
fiduciary duties cannot be traded on;
If you receive the information in a public forum it has been disseminated and you
can trade on it;
As long as the information is nonmaterial, the MaC can use the information to
support an investment recommendation;
If a firm has an investment banking department that comes in possession of
material nonpublic information it should restrict employee trading in securities for
which the firm is possession of material nonpublic information. Recording the
exchange of information between the two departments is not the best option
because there should be no exchange of information between the two
departments;
A MaC that comes into possession of material nonpublic information must make
reasonable efforts to have the source of the information make public disclosure of
it;
If a MaC comes into possession of material nonpublic information, he must not
trade or cause others to act on it; therefore, if he receives an order from a client
that goes against the information he possesses, he must execute it regardless.
b. Market Manipulation:
Duties to Clients
a. Loyalty, Prudence and Care:
Failing to make a reasonable enquiry into the clients investment experience, risk
and return objectives and financial constraints is a violation;
Failing to consider investments based on a total portfolio approach is a violation;
MaCs shall use particular care in determining applicable fiduciary duty. Under
ERISA, a fiduciary has the duty to diversify a plans investments in order to protect

b.

c.

d.

e.

it from the risk of substantial loss. The firm must follow pension plan instructions
and restrictions unless they conflict with ERISA or other applicable laws and
regulations;
To comply with the standard, a MaC must vote proxies in an informed and
responsible manner. A cost benefit analysis may show that voting all proxies may
not benefit the client, so voting proxies may not be necessary in all instances;
Directed brokerage occurs when the client requests a portion of their brokerage to
be used to purchase services that directly benefit the client. Although this may
prevent best execution, it does not violate the standards as it was directed by the
client, not the brokerage firm;
Under this standard, MaCs should utilize client brokerage to the sole benefit of the
client and submit to clients at least quarterly itemized statements detailing all the
periods transactions. MaCs must not vote all proxies, they should vote only those
that pass a cost-benefit test;
Fair Dealing:
An access person is a person that has access to information during the normal
preparation of research recommendations, and are thus subject to the standard;
If an investment advisor relays information from a research seminar straight to one
client before the others, he is in violation of the standard;
Suitability:
MaCs can accept orders from clients for securities that do not fit their risk profile
but must acquaint them with risk associated before accepting the order;
MaCs must consider investment experience, objectives (risk and return) and
constraints before investing funds on the clients behalf or recommending
investments to the client. The IPS must be updated at least annually or after
significant changes in client circumstances;
If a clients circumstances change suddenly (eg inheritance), the MaC must adhere
to the existing portfolio strategy until a new portfolio strategy is developed based
upon updated financial information;
Performance Presentation:
Creating a new fund and reporting historical performance of the assets included is
a violation of this standard because it introduces a survivorship bias and the
advertisement is misleading because the fund just came into existence and has no
historical record;
Truthfully stating I was able to earn 15% for a client last year is a violation of the
presentation of performance standard (but is not a violation of the
misrepresentation standard);
Preservation of Confidentiality:
Hiring an outside company to send birthday cards to clients is a violation because
the MaC should limit the number of people who have access to clients personal
information;
Sending a birthday card is NOT a violation;
Sending a birthday gift of reasonable value is NOT a violation;
Applies to information from current, prospect and past clients;
If a MaC determines that a client is involved in illegal activities, he can contact the
CFA Institute about the determination and contact the appropriate governmental
authorities about the determination;
This standards applies to personal information of clients as well;

IV.

Duties to Employers
a. Loyalty:
The standard does not require notifying the employer when PREPARING to go into
independent practice;
Examining friends portfolios and making recommendations, even when receiving
no monetary compensation or providing future investment counsel to them is a
violation if the MaC does not notify his employer because the MaC undertook
independent practice that could result in compensation or other benefit to him;
The relationship must be disclosed to the employer if it conflicts with employers
or clients interests; a position in the board of a golf club, for which the MaC
receives no compensation apart from free membership, does not likely present a
conflict of interest and therefore does not need to be disclosed;
A written contract may or may not exist between employer and employee;
Monetary compensation is not a requirement of the employee/employer
relationship;
A MaC cannot take with him any property belonging to their current employer
without their consent. Merely disclosing the intention to do so does not constitute
consent;
b. Additional Compensation Arrangements:
The MaC must get written consent from his employer if an offer of
travel/entertainment is contingent on future performance to comply with the
standard;
Written approval from BOTH the current employer of a MaC and the firm offering
a consulting contract is required to comply with the standard;
MaCs must obtain written consent from all parties involved before accepting
monetary compensation or other benefits for services that are in addition to those
conferred by a members employer;
MaCs must disclose to their employers in writing all benefits they receive in
addition to their regular compensation for services they perform on behalf of their
employer. They also need to get consent from their employer in writing;
A portfolio manager can accept additional performance-related compensation
from a client with written consent from all parties involved;
Notifying the employer about an agreement to take on a consulting role is not
sufficient, the MaC needs written consent from both parties before being able to
proceed;
A MaC can perform other work and receive monetary compensation for it if it is
not in competition with their existing employment;
c. Responsibilities of Supervisors:
If a MaC believes the current procedures are not adequate, they must refuse
supervisory responsibilities in writing until an adequate system is adopted;
When hiring someone at a lower level, someone at a senior level does not assume
any extra responsibility;
Supervisors are expected to bring an inadequate compliance system to the
attention of the firms senior managers and recommend corrective actions;
Supervisors are expected to have an in-depth knowledge of the Code and
Standards and to apply this knowledge in discharging their supervisory
responsibilities;
Supervisors may delegate supervisory duties but this does not relieve them of their
supervisory responsibilities;
If the existing compliance system is inadequate, the MaC must decline supervisory
responsibility until reasonable procedures are put in place. The MaC cannot accept

V.

VI.

supervisory responsibilities conditional to adequate procedures being put in place

or subject to being able to put them in place himself;
A supervisor can dissociate himself from an illegal activity carried out by a
someone they supervise by reporting the activity to the appropriate authorities.
However, the Code and Standards do not require that he report legal violations to
the appropriate governmental or regulatory organizations;
If a supervisor suspects someone violated a federal securities regulation, they must
initiate an investigation and place limits on the persons activities pending the
outcome; telling them to stop is not sufficient;
If a supervisor has reasons to believe that an analyst may be trading for their own
account based before the publication of investment recommendations, as part of
his supervisory responsibilities he should promptly initiate an investigation as the
first step;
Investment Analysis, Recommendations and Action
a. Due Diligence and Reasonable Basis:
Overhearing a conversation does not provide adequate basis, therefore making
investment decisions based solely on it is a violation;
An analyst has to verify that the data used by a colleague to carry out analysis is
accurate;
If a MaC finds out that a supervisor plans to publish the first version of a report
subsequently revised by the MaC, he must insist that the supervisor change report
to reflect the update or remove his name from the report in order to comply with
the standard on reasonable basis;
A supervisor of a MaC is free to issue a report that differs somewhat from the
MaCs conclusions as slong as there is a reasonable basis. A MaC should not put
their name on a report that differs from their opinion; however, when the report is
a group effort, not all members may agree with every aspect of the report, and
there is no reason to ask that their name be removed unless they believe the
conclusions drawn in the report to lack a reasonable basis.
b. Communication with Clients and Prospective Clients:
An analyst does not violate the standard by presenting a report on a stock
uncorrelated with interest rates to fixed income clients only and not to equity
investors because the analyst is free to show the report only to investors for whom
the investment is appropriate;
Any change in the scope, valuation methodology or focus of the portfolio must be
discussed with clients;
The firm must disclose general principles and investment processes to clients and
promptly disclose any changes that might significantly affect those processes. Fund
managers need to adhere to the funds investment policy or communicate an
intended change in that policy well in advance of the actual change so as to afford
investors time to act prior to the change taking place;
c. Record Retention:
CFA Institute recommends retention of all records for at least 7 years;
Conflicts of Interest
a. Disclosure of Conflicts:
Friendship/relationship with the President of firm analyzed requires disclosure;
Ownership of a substantial amount of shares of firm analyzed requires disclosure;
Possibility of employment with a firm analyzed requires disclosure;
Ownership of shares of firm analyzed by brother-in-law does NOT require
disclosure;
Ownership of shares of firm analyzed by wife requires disclosure;

VII.

The relationship must be disclosed to the employer if it conflicts with employers

or clients interests; a position in the board of a golf club, for which the MaC
receives no compensation apart from free membership, does not likely present a
conflict of interest and therefore does not need to be disclosed;
A MaC must disclose their position on the board of a charity if it is related to the
sector they cover, and describe their responsibilities on the board;
If a MaCs firm invests in firms in which the MaC has previously invested, in order
to avoid conflicts of interest, the MaC should hire a full discretionary power or
blind trust manager for his portfolio;
Remuneration policy is a potential source of conflict of interest and the firms
disclosures should be updated if a policy change is implemented;
A MaCs sister receiving stock options for a stock covered by the analyst would
require disclosure;
If an analyst initiates coverage on a stock that he owns shares of, a stake of which
his company is aware, the analyst must directly disclose his holdings or have his
company issue a generic disclaimer about analyst stock ownership. Reassignment
of coverage or sale of the shares before issuing the report would also satisfy the
requirements of the standard but are not necessary;
b. Priority of Transactions:
Responsibilities as a CFA Institute Member or CFA Candidate
a. Conduct as Members:
Misrepresenting information on the Professional Conduct Statement is a direct
violation of the standard;
Summary suspension upon covered persons can be imposed due to failure to
return annual professional conduct statements or disbarment under securities
laws, not for misdemeanor charge for the possession of illegal narcotics;
Disclosing information about the CFA exam is a violation of this standard;

b. Reference to the CFA Institute, the CFA Designation and the CFA Program:
Exaggerating the implications of holding the CFA designation is a violation;
Failure to submit a Professional Conduct Statement and pay annual dues is a
violation;
If one relinquished their membership, stating that they have earned the CFA
designation is not a violation as long as they do not indicate they currently have
the designation;
Saying someone is a Chartered Financial Analyst is a violation of the standard
because the CFA designation should always be used as an adjective;
Saying CFA designation is not a violation of the standard that forbids using CFA
as a noun;
Stating that one has passed each level of CFA on the first try is NOT a violation
because it is a statement of fact, but one cannot go on and claim superior
performance;
A MaC may be suspended from using the CFA designation both as a result of being
convicted or pledging guilty to a crime, and being acquitted of the crime but being
barred from continuing to work in the investment industry;
Posting a comment on an internet forum that says that a MaC believes the CFA
Institute is intentionally limiting the number of charterholders by failing candidates
in order to increase its cash flow is not a violation of the standard because MoCs
are allowed to express their opinions;

Research/Soft Dollar:
Brokerage is commission generated from trades and is an asset of the client not the investment
manager. Soft dollars is the use of brokerage to purchase research services that benefit the client in
the investment-making decision process. The investment manager has an ongoing responsibility to
seek to obtain best execution, minimize transaction costs and use client brokerage to benefit
clients. Consequently, contingent on disclosure of a soft dollar arrangement to clients whose
portfolios may be affected, the CFA Institute Standards permit client brokerage to be used only to
purchase research, that is goods and services whose primary use is to directly assist the investment
manager in the investment decision making process and not in the management of the firm.
Therefore, using soft dollar to pay for attendance at a conference devoted to improving
management of the investment advisory firm is a violation.
In order to deviate from CFA Institute Standards and, for instance, direct brokerage towards an
affiliated broker, the investment manager must disclose policies with respect to all soft dollar
arrangements to the client and receive written consent from the client that he understands the
consequences if the investment manager is not seeking best price and execution.
Nothing wrong with passing research on to someone indicated by the client with whose soft dollar
it was purchased, provided it is not prohibited by the provider;
CFA Institute 3-tiered analysis to determine whether in compliance;
In cases when the manager cannot determine whether the expenditure qualifies for soft dollars,
soft dollars cannot be used;
The quality of the transaction comes first, ie the optimization of the balance between transaction
costs and execution;
All commissions paid to a broker are the property of the client;
The standard is violated if the commissions of some clients are used to pay for research benefiting
other clients;
In order to claim compliance with CFA Institute Soft Dollar Standards, a firm has to re-evaluate
mixed-use research at least once a year. They need NOT comply with all recommended provisions
of the Soft Dollar Standards, only with the mandatory ones.
Upon client request, the MaC must be able to provide the aggregate percentage of the firms
brokerage derived through client-directed brokerage and the total amount of the clients
commissions generated through soft-dollar arrangements. The disclosure of total amount of
brokerage paid by the firm is recommended but not required;
A MaC would violate the Research Objectivity Standards by sending a report to the CFO of the firm
in object in advance of publishing it; to comply with the standard, the MaC can send only the
sections of the report containing facts about the company for verification;
Objectives of the CFA Institute Research Objectivity Standards include assisting in full, fair,
meaningful and specific disclosure of potential and actual conflicts of interest. The ROS do not
intend to create any sort of reporting to CFA Institute on the research practices of any firm;
Research objectivity standards: research should be updated regularly, communication should be
restricted between the analyst and investment banking employees before the publication of a
research report, and employee trades should be restricted 30 days before and 5 days after the
release of a research report;
Research Objectivity Standards are intended to promote self-regulation to ensure independent and
objective research;
Lack of appropriate procedures to separate research and investment banking and stock options
being granted to research analysts violate the ROS;
Research Objectivity Standards prohibit analysts from sharing with subject companies any sections
of a report that may communicate the recommendation, rating or price target prior to the reports
publication. It is recommended by the ROS that firms institute policies that require approval from
the firms compliance department before an analyst shares any information with the subject
company. It is also recommended that the firm document and maintain records of information that

is shared with subject companies prior to the publication of a research report and any changes that
occur subsequent to the information exchange.
Asset Manager Code Recommendations and Guidance:
Managers must disclose the performance of clients assets on a timely and regular basis, and within
30 days after the end of the period;
Managers must not give preferential treatment to favoured clients; however, it is permissible to
provide a higher level of service to clients that pay for them, provided other clients are not
disadvantaged;