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. Financial Advisors

    Tips on Passing the CFA Level I on Your First Attempt

    Obtain valuable tips and helpful study instructions that can help you pass the Level 1 Chartered Financial Analyst exam on your first attempt.
  2. Financial Advisors

    Putting Your CFA Level I on Your Resume

    Learn techniques for emphasizing your CFA Level I status in the Skills and Certifications or Professional Development section of your resume.
  3. Professionals

    Investment Analyst: Career Path and Qualifications

    Learn how to prepare for a career as an investment analyst, and read more about how many professionals in the field progress during their careers.
  4. Professionals

    CAIA Vs. CFA: How Are They Different?

    Find out how the CAIA and CFA designations differ, including which professionals should seek either title based on their career ambitions.
  5. Professionals

    Equity Investments: CFA Level II Tutorial

    Chapter 1: Equity Valuation: Its Applications and Processes Chapter 2: Return Concepts for Equity Valuation Chapter 3: Industry Analysis With Porter's 5 Forces
  6. Professionals

    What To Expect On The CFA Level III Exam

    The Chartered Financial Analyst Level III exam, which is only offered in June, is the last in the series of three tests that CFA candidates must pass.
  7. Professionals

    What To Expect On The CFA Level I Exam

    Becoming a chartered financial analyst requires the passing of three grueling exams covering an array of topics.
  8. Options & Futures

    The Alphabet Soup of Financial Certifications

    We decode the meaning of the many letters that can follow the names of financial professionals.
  9. Professionals

    How to Ace the CFA Level I Exam

    Prepare to ace the CFA Level 1 exam by studying systematically.
  10. 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.
  1. Personal Financial Advisor

    Professionals who help individuals manage their finances by providing ...
  2. CFA Institute

    Formerly known as the Association for Investment Management and ...
  3. Security Analyst

    A financial professional who studies various industries and companies, ...
  4. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly ...
  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. 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 >>
  3. 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 >>
  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. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center