Reading 91 — Part A

The Standards of Professional Conduct comprise seven Standards (I-VII) with a total of 23 subsections. Their application is described in the Standards of Practice Handbook, 12th Edition (2024), published by CFA Institute. The Handbook is included in the CFA curriculum and can also be downloaded from the CFA Institute website.

For each subsection, the summary focuses on three things: (1) actions that clearly violate the subsection, (2) the behaviors the subsection is meant to encourage or discourage, and (3) recommended best practices for members and their firms.

Many requirements use open-textured terms such as reasonable, adequate, and token. Examples include phrases like:

• …use reasonable care and judgment to achieve…
• …accept any gift that reasonably could be expected to compromise…
• …deal fairly and objectively with all clients…
• …have a reasonable and adequate basis…

The LOS requires you to know what constitutes a violation, not to draw a fine line on what is "reasonable." Exam questions are typically clear: when conduct fails the standard, the facts will show it does. Likewise, no dollar value is given for a "token" gift — the Standards recommend each firm set its own threshold. A business dinner is likely a token gift; a week at a luxury condo or Super Bowl tickets clearly are not. Watch for clue words such as lavish or luxury.

Some actions may violate more than one Standard. For the exam it is not necessary to memorize the Standard number and subsection letter — knowing that an action violates, e.g., Professionalism rather than Duties to Employers is sufficient.

Question writers often offer a "reason" suggesting the Standard should not apply. In most cases the reason does not change the requirement: if it is a violation, it is a violation. The exception is when intent is part of the Standard (e.g., intent to mislead).

STANDARD I: PROFESSIONALISM

Standard I(A) — Knowledge of the Law

The Standards open with a direct rule: do not violate any laws, rules, or regulations applicable to your professional activities — including the Code and Standards themselves. Any violation of the Code and Standards therefore also violates this subsection.

Members may be subject to multiple regimes (the Standards, their country of residence, and the country where business is conducted). The rule is to follow the strictest of these — equivalently, do not violate any of them.

If you become aware that violations are taking place — by coworkers or clients — CFA Institute strongly encourages reporting. The first step is usually to escalate to your supervisor or compliance department. If they cannot or will not address the issue, you must dissociate from the activity (for example, refusing to work with a trading group that is mis-allocating client trades, or refusing to use marketing materials you know to be misleading). In an extreme case, you may need to resign to remain in compliance.

Recommendations for Members

• Establish, or encourage your employer to establish, procedures to keep employees informed of changes in relevant laws, rules, and regulations.
• Review, or encourage your employer to review, the firm's written compliance procedures regularly.
• Maintain, or encourage your employer to maintain, current copies of applicable laws, rules, and regulations.
• When in doubt about legality, consult a supervisor, compliance personnel, or a lawyer.
• When dissociating from violations, keep records documenting the violations and encourage your employer to bring them to an end.
• Reporting wrongdoers is not required by the Standards (although local law may require it); members are strongly encouraged to report violations to the CFA Institute Professional Conduct Program.

Recommendations for Firms

• Have a code of ethics.
• Provide employees with information on the laws, rules, and regulations governing professional activities.
• Have procedures for reporting suspected violations.

Standard I(B) — Independence and Objectivity

Analysts may face pressure or inducements to issue a particular rating, to select certain outside managers or vendors, or to produce a favorable (or unfavorable) report. Letting such pressure influence analysis violates this Standard. Allocating shares of oversubscribed IPOs to personal accounts is also a violation.

Normal business entertainment is permitted. Offering, soliciting, or accepting items of value that could reasonably be expected to influence independence or objectivity is a violation. Gifts from clients are considered less likely to compromise objectivity than gifts from other parties — but client gifts must be disclosed to the employer (before acceptance if possible, otherwise after).

Members may prepare issuer-paid research if compensation is a flat fee not tied to the conclusions of the report, and the issuer-paid nature is disclosed. Compensation contingent on conclusions, recommendations, or market impact — or failure to disclose the issuer-paid arrangement — violates the Standard.

Recommendations for Members

• Members or their firms should pay for their own travel to company events or tours when practicable, and limit use of corporate aircraft to trips for which commercial travel is not an alternative.

Recommendations for Firms

• Restrict employee participation in IPOs and private placements; require pre-approval for participation.
• Appoint a compliance officer; have written policies on independence and objectivity and clear procedures for reporting violations.
• Limit gifts from non-clients to token items only.

Standard I(C) — Misrepresentation

Misrepresentation includes knowingly misleading investors, omitting relevant information, presenting selective data to mislead, and plagiarism.

Plagiarism is using reports, forecasts, models, ideas, charts, graphs, or spreadsheets created by others without crediting the source. Crediting is not required when using projections, statistics, and tables from recognized financial and statistical reporting services. When using models or research developed by other members of the firm, omitting names of those who are no longer with the firm is permitted, as long as the member does not represent past work as their own.

Actions that would violate the Standard include:

• Presenting third-party research as your own without attribution.
• Guaranteeing a specific return on securities that do not have an explicit guarantee from a government body or financial institution.
• Selecting a valuation service because it produces the highest value on untraded holdings.
• Selecting a performance benchmark that is not comparable to the strategy employed.
• Presenting performance data or attribution analysis that omits accounts or relevant variables.
• Offering false or misleading information about the analyst's or firm's capabilities, expertise, or experience.
• Using marketing materials from a third party (outside advisor) that are misleading.

Recommendations for Members

• Prepare a written summary of experience, qualifications, and services the member is able to perform.
• Encourage employers to develop procedures for verifying marketing materials provided by third parties.
• Cite the source of any summaries of materials provided by others.
• Keep copies of all reports, articles, or other materials used to prepare research.
• Provide a written list of the firm's services and qualifications.
• Periodically review documents and communications for any misrepresentation of employee or firm qualifications and capabilities.

Standard I(D) — Misconduct

The first part — no dishonesty, fraud, or deceit in professional conduct — is straightforward. The second part applies to all conduct by the member, but only when the act "reflects adversely on professional reputation, integrity, or competence." The guidance specifically warns that members must not invoke this Standard against another member to settle personal, political, or other disputes unrelated to professional ethics or competence.

Recommendations for Firms

• Develop and adopt a code of ethics; make clear that unethical behavior is not tolerated.
• Give employees a list of potential violations and sanctions, including dismissal.
• Check references of potential employees.

Standard I(E) — Competence

Competence means having and maintaining the abilities, skills, and knowledge needed to perform a member's professional responsibilities. The required abilities depend on the specific responsibilities a member assumes. Although competence is necessary to succeed as a financial analyst, negative outcomes do not necessarily imply a lack of competence.

If a member or candidate accepts a new or unfamiliar professional role, it is the member's responsibility to develop the abilities, skills, and knowledge that the new role requires.

This Standard recommends, but does not require, that members or candidates participate in continuing education.

Recommendations for Members

• Participate in continuing education, professional development, or employer-provided training.
• Acquire professional designations.
• Attend relevant seminars or conferences.
• Participate in professional organizations.
• Engage in informal self-study.