Study Session I: Ethics, Ethics and More Ethics

This week begins our 21-week study program with posts for each level and each study session. Rather than have three separate posts for the ethics material in each of the levels, we will break the entire code and standards into three posts.
Ethics and the Standards are arguably the most important readings for the exams, not because they are worth the most points in any one exam but because of the aggregate points they represent and the opportunity for candidates. The material accounts for about 11.7% of your total points and is basically the same across the three exams. This means that learning the material before your first exam will save you massive amounts of time studying for the other two tests.
Below shows the readings and weight for the material across the three exams.
Level I: 15% in four readings in (1) study session

  • Code of Ethics and Standards of Professional Conduct
  • Guidance for Standards
  • Introduction to the Global Investment Performance Standards
  • Global Investment Performance Standards

Level II: 10% in ten readings in (2) study sessions

  • Code of Ethics and Standards of Professional Conduct
    • Guidance for Standards
    • CFA Institute Soft Dollar Standards
    • CFA Institute Research Objectivity Standards
    • Readings 5-10, Application Cases

Level III: 10% in six readings in (2) study session

  • Code of Ethics and Standards of Professional Conduct
  • Guidance for Standards
  • Reading 3-5, Ethics in Practice and Cases
  • Asset Manager Code of Professional Conduct

Notice that each level does include additional topics like GIPS, Soft Dollar Standards and the Asset Manager Code of Conduct. It is possible that you will see a couple of questions on these but the core of the material remains with the Code and Standards. We’ll cover the additional material in the last post of the week with the Code and Standards in three posts.
Again, the material is extremely important and you need to give it adequate attention. Many candidates just read through the material and assume that, because they consider themselves ethical, they will know the correct answer on the exams..
Ethics questions on the exams can range from a few short sentences to a paragraph within a vignette followed by the standard three answer, multiple choice format. One answer will often be No Violation, while the other two will either be violations of different standards or violation of the same standard with different reasons. The two “violation” answers are often reasonable choices, so you really need to work problems in the curriculum to (learn) how the Institute reasons.
Professional Conduct Program (PCP): You need to know the structure of the PCP and the general process for disciplinary actions. The committee has four sources of information (self-disclosure, written complaints, media or public source, and exam proctors). When an inquiry is initiated, it is assigned to staff who collects information and has three outcomes: no sanction required, cautionary letter, continue with issue. The member/candidate can reject or accept this outcome and request the issue taken up by a panel of members. ONLY members or candidates are subject to the PCP and Code of Ethics or the Standards. *An important point here is that a Supervisor with a CFA is ethically responsible for the work of subordinates but those subordinates without charters would not be bound to the CFA Code and Standards.
SPAMED: Components of the Code
The components of the Code always seemed a little redundant next to an understanding of the Standards, but a simple acronym makes it fairly easy to remember and could be worth a question. While SPAMED does not exactly align with the code as it is written in the curriculum, I found it easier than other acronyms and I got enough of the idea to remember the material.

  • Subordinate personal interests
  • Promote the integrity of and uphold rules governing capital markets
  • Act with integrity, competence, diligence, respect…
  • Maintain and improve professional competence…
  • Exercise reasonable care and independent judgment…
  • Demonstrate ethical practice and professionalism

We’ll cover the standards in the next two posts and additional material on Friday.
‘til then, happy studyin’
Joseph Hogue, CFA

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