Ethics and Standards - Standard I-D: Misconduct

Members and Candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.

Reasoning behind Standard I-D
This Standard was written with the understanding that simple compliance with all laws, rules and regulations (i.e. the essence of Standard I-A) is in a number of cases not enough to create a highly ethical culture for the investments profession. Standard I-D thus extends beyond the scope of Standard I-A to address the personal integrity of Members and Candidates. For example, there is no law, rule or regulation preventing one from drinking alcoholic beverages before going to work or while at lunch and returning to work while under the influence. It's also true that such behavior was socially acceptable decades ago with the popularity of the so-called three-martini lunch. But times have changed.

In today's culture, such behavior is clearly viewed as adversely impairing one's judgment and reasoning. It reflects poorly not just on that individual, but on the person's firm and on investment professionals in general. While the language of Standard I-D is open to interpretation (and one could debate whether the rule is being violated in certain situations), the overriding spirit of Standard I-D is that the investment management business is very image conscious, and Members and Candidates must assume that their conduct is being judged - not just by clients, coworkers or supervisors, but in relation to the profession as a whole.

What type of specific conduct constitutes a violation of Standard I-D? Even if your conduct within your professional workplace is impeccable, the activities you partake in after-hours can also constitute a violation of the Standard.

For example; if an individual has been convicted of a felony, crime, or misdemeanor, that person has indicated to others that he or she partakes in immoral, dishonest, and unethical activities. Who's to say this behavior will not be repeated within his or her professional activities?

Applying Standard I-D
CFA candidates typically know the difference between right and wrong, so exam questions will try to trap you with various qualifiers to a situation. Be aware that the most important thing to evaluate is what the person actually has done, and avoid the following traps:

  1. Don't rely on the judgment of the individual's supervisor - Many examples will indicate that "a supervisor didn't find that the behavior in question affected day-to-day responsibilities, and the supervisor knew about it but was OK with it as long as it didn't happen again". In these cases, the opinion of the supervisor is not important - it's the actual act that must be your focus. Don't worry about the supervisor. Keep the analysis simple: do the actions of this person violate any facet of the Standards? (Is it a felony? Does it involve fraud or an act of moral turpitude?)
  2. Don't forgive misconduct simply because there is no conviction - In our legal system, most cases get settled out of court. If an activity is fraudulent, if the perpetrator tried to get away with something or tried to deceive, it's a violation of Standard I-D even if the misconduct doesn't result in a conviction. Again, focus on what the person did.
  3. Dishonesty and fraud are possible even when one is engaged in volunteering for charitable causes - Focus on what the person has actually done. If it is fraudulent, if it misrepresents, or if it is deceitful, then it's a violation.

How to Comply
Personal integrity and professional conduct start with the individual, with one's sense of right and wrong behavior, and with one's moral character. Improper and inappropriate actions have consequences, but in a position of trust, one is sometimes in a position to get away with fraudulent behavior. If an action provokes the feeling that you hope no one else finds out, it's probably something that shouldn't be done. You should never feel like you have something to hide.

In addition to the CFA Institute, the Securities and Exchange Commission, FINRA, and many other governing and regulatory bodies are in place to provide a regulatory framework and require compliance and full disclosure of one's activities. In addition, CFA Members and Candidates should encourage employers to adopt a code of ethics to cover personal conduct for everyone in the organization, and to adopt background-checking procedures for potential employees, so that an organization is fully aware of any prior legal issues and is confident that potential employees are not ineligible for employment in the investment industry.

Standard II-A: Material Nonpublic Information
Related Articles
  1. Personal Finance

    How To Choose A Financial Advisor

    Many advisors display similar skillsets that can make distinguishing between them difficult. The following guidelines can help you better understand their qualifications and services.
  2. Investing

    Asset Manager Ethics: Investment Process and Actions

    Managers, in developing their investment process, need to determine some “general rules” that make it meaningful. We offer six.
  3. Professionals

    Career Advice: Financial Analyst Vs. Investment Banker

    Read an in-depth comparison about working as a Financial Analyst vs. working as an Investment Banker, two highly prestigious business careers.
  4. Professionals

    Advisors: Which Certifications Are Essential?

    The right advisor credentials can make all the difference, but wading through some 100 certifications can be a challenge. Here's some help.
  5. Investing Basics

    Asset Manager Ethics: Valuation Is A Tricky Business

    Asset managers must accurately represent all of a clients assets in the client portfolio. This can be tricky for unique and hard-to-value assets.
  6. Personal Finance

    Top 10 Most Valuable Sports Teams in 2015

    Cleats, pads and profits: we take a look at the top 10 most valuable sports teams in the world.
  7. Professionals

    Chinese Slowdown Affects Iron Ore Market

    The Chinese economy's ongoing slowdown is having a major impact on iron ore demand.
  8. Personal Finance

    Invest in Costco? First Understand Its Balance Sheet

    A strong balance sheet sets a company apart and boosts investor confidence. How healthy is Costco based on an analysis of its balance sheets from the last two years?
  9. Investing Basics

    Brokers and RIAs: One and the Same?

    Brokers and registered investment advisors have some key differences. Here's what you need to know.
  10. Professionals

    DCF Vs. Comparables: Which One To Use

    DCF and Comparables models are widely used in equity valuation. We explain the pros and cons of each method.
  1. Personal Financial Advisor

    Professionals who help individuals manage their finances by providing ...
  2. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly ...
  3. Security Analyst

    A financial professional who studies various industries and companies, ...
  4. CFA Institute

    Formerly known as the Association for Investment Management and ...
  1. What are the differences between a Chartered Financial Analyst (CFA) and a Certified ...

    The differences between a Chartered Financial Analyst (CFA) and a Certified Financial Planner (CFP) are many, but comes down ... Read Full Answer >>
  2. What types of positions might a Chartered Financial Analyst (CFA) hold?

    The types of positions that a Chartered Financial Analyst (CFA) is likely to hold include any position that deals with large ... Read Full Answer >>
  3. How do I become a Chartered Financial Analyst (CFA)?

    According to the CFA Institute, a person who holds a CFA charter is not a chartered financial analyst. The CFA Institute ... Read Full Answer >>
  4. Who benefits the most from prepaid expenses?

    Prepaid expenses benefit both businesses and individuals. Prepaid expenses are the types of expenses that are bought or paid ... Read Full Answer >>
  5. If I am looking to get an Investment Banking job. What education do employers prefer? ...

    If you are looking specifically for an investment banking position, an MBA may be marginally preferable over the CFA. The ... Read Full Answer >>
  6. Can I still pass the CFA Level I if I do poorly in the ethics section?

    You may still pass the Chartered Financial Analysis (CFA) Level I even if you fare poorly in the ethics section, but don't ... Read Full Answer >>
Hot Definitions
  1. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  2. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  3. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  4. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  5. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  6. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!