Guidance on Professional Standards for the CFA Exams

We started our 21-week blog study plan this week with posts on the code and standards. This week will finish up guidance on the standards. The last post for the week will cover additional material in the first study sessions across the three exams.
Standard IV- Duties to Employers
Loyalty
Remember benefit should be to (in order): client, employer, then yourself
* Must NOT take any records, files, or property from employer when leaving. You can reconstruct client information, but only from memory
* You can make preparations for another job (before leaving employer) but only on your own time and it must not conflict with employer until after you have formally left their employment.
Additional Compensation
*** Written Consent (not verbal!) must be obtained from ALL parties (employer and third parties) prior to accepting additional compensation that could create a conflict with employer
Responsibilities of Supervisors
This is a confusing one for many candidates because a lot falls under the ‘should have known’ category. **Understand that supervisors should have policies in place that help prevent or detect violations
*Inform IN WRITING if the company has an insufficient compliance system and decline your supervisory position if the company fails to improve compliance.
* Even if employees are not members/candidates, a charterholder supervisor is responsible under the Code and Standards for their actions.
Standard V- Investment Analysis, Recommendations, and Actions
Diligence and Reasonable Basis
* a big part of this is relying on second or third-party information ONLY if you can confirm the validity and reliability of their research
– You do not need to disassociate from a recommendation (of which you do not agree) made in a group if the recommendation has a reasonable basis but you should document your disagreement.
Communication with Clients and Prospective Clients
* big issue here is distinguishing between FACT and OPINION in analysis.
* communications must include basic factors and processes used in investment analysis/selection. This does not mean a lengthy discussion but a general statement on how investments are selected.
Record Retention
Keep all records on analysis/recommendates for SEVEN (7) years
Records are property of employer so it is their responsibility to keep them if you leave
Standard VI- Conflicts of Interest
* Important that disclosures are made for actual and POTENTIAL conflicts
-Disclose any material ownership. The Institute does not put a dollar amount but it is usually fairly obvious. Ownership is personal or anyone living in same household (but not family living outside of household).
Priority of Transactions
– Again, priority is for: Client, Employer, then self (beneficial ownership)
“Family” or beneficial ownership is only those residing with you. Other family, not living with you, should be treated same as other clients
– Oversubscribed IPO should be pro-rated to clients first
Referral Fees
Any compensation or benefit must be disclosed (must include nature of benefit)
– Issue here is usually when there is obvious connection between yourself and who you are referring. Example: you are referring services offered by other departments at your company
Standard VII- Responsibilities of members and candidates
This always seemed the catch-all for stuff not covered by other standards.
* Focus seems to be on candidate obligation to the standards (don’t cheat on the exams)
– Members can disagree with Institute and express differing opinions but must not do something that compromises reputation of the Institute or the designation
Reference to the Institute, designation, and program
– Designation (CFA) can only be attached to a person, not a company
– You must pay dues and sign annual standards compliance to use designation
That wraps up our posts on the Code and Standards. We’ll cover the additional material to the first study sessions in the last post this week (Friday) and start on study session two next week.
‘til next time, happy studyin’
Joseph Hogue, CFA

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