CFA Level 1 Ethics: Our Cheat Sheet

Note: this cheat sheet is updated for the latest 2023’s curriculum.

If mastered, Ethics can be the ace up your sleeve throughout your CFA exam journey, given its relative high topic-weight yet similar content across all 3 levels.

That said, Ethics can be really dry to read through at times… we know, as we have gone through them ourselves.

That’s why we’ve created this CFA Level 1 Ethics Cheat Sheet to help speed up your revision of this section.

Our Cheat Sheet series focuses on one specific topic area for each CFA Level.

More Cheat Sheets will be published and updated continuously, sign up to our member’s list to be notified first.

By referring to the CFA Learning Outcome Statements (LOS), we prioritize and highlight the absolute key concepts and formula you need to know for each topic. Plus some topic-specific tips at the end too!

Let’s dive in!

CFA Level 1 Ethics: An Overview

cfa level 1 ethics cheat sheet

Ethics is present in all 3 levels of the CFA exams and something candidates need to master for various reasons:

  • Significant topic weighting and tested across 3 levels (10-20%).
  • Highly transferable knowledge across 3 levels: CFA Ethics works on the same base knowledge of Code and Standards for all 3 levels. This means what you’ve learnt in Level 1 will still be applicable in Level 3 questions. Combine that with the relatively little amount of time needed to master Ethics, suddenly you have a very effort-efficient topic in your hands.
  • Ethics adjustment which matters to your CFA exam pass/fail decision if you are a borderline case.

2023 CFA Level 1 Ethics’ topic weighting is 15%-20%, which means 27-36 questions of the 180 questions of CFA Level 1 exam is centered around this topic.

It is covered in Topic 10 which contains 5 Learning Modules (LMs).

Learning ModuleSub-topicDescription
1Ethics and Trust in the Investment ProfessionAn introduction to Ethics and why a high level of ethical standard is needed in investment management.

This LM is not covered in our summary notes below given its introductory nature.
2Code of Ethics and Standards of Professional ConductThe key to know here is the 6 components of Code of Ethics and 7 Standards of Professional Conduct.
3Guidance for Standards I–VIIThe main section you need to master of all the Ethics readings, as it goes through the details of each Standard.
4Introduction to the Global Investment Performance Standards (GIPS)An introduction to GIPS: why it was created, to whom in applies to, how to verify GIPS compliance.
5Ethics ApplicationA new chapter that goes through lots of examples of ethics in practice.

This LM is not covered in our summary notes below as it is filled with examples, but do use it for your practice to learn how to answer CFA ethics questions!

CFA Level 1 Ethics is focused on educating candidates on the CFA Institute’s Code of Ethics & Standards of Professional Conduct, an ethical benchmark for investment professionals worldwide.

Equally important is also the Global Investment Performance Standards (GIPS), which is the standard on how firms are supposed to record, compare and present investment performance.

CFA Ethics, in a nutshell, is there to teach you:

– how investment managers should conduct themselves.
– how firms should represent their investment performance.

LM2: Code of Ethics and Standards of Professional Conduct

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6 Code of Ethics

  1. Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets.
  2. Place the integrity of the investment profession and the interests of clients above their own personal interests.
  3. Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities.
  4. Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession.
  5. Promote the integrity and viability of the global capital markets for the ultimate benefit of society.
  6. Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.

7 Standards of Professional Conduct

Yes, you need to know all of these 22 Standards and sub-sections in details, plus their applications (see next LM).

  1. Professionalism
    • A) Knowledge of the Law
    • B) Independence and Objectivity
    • C) Misrepresentation
    • D) Misconduct
  2. Integrity of Capital Markets
    • A) Material Nonpublic Information
    • B) Market Manipulation
  3. Duties to Clients
    • A) Loyalty, Prudence, and Care
    • B) Fair Dealing
    • C) Suitability
    • D) Performance Presentation
    • E) Preservation of Confidentiality
  4. Duties to Employers
    • A) Loyalty
    • B) Additional Compensation Arrangements
    • C) Responsibilities of Supervisors
  5. Investment Analysis, Recommendations and Actions
    • A) Diligence and Reasonable Basis.
    • B) Communication with Clients and Prospective Clients
    • C) Record Retention
  6. Conflicts of Interest
    • A) Disclosure of Conflicts
    • B) Priority of Transactions
    • C) Referral Fees
  7. Responsibilities as a CFA Institute Member, or CFA Candidate
    • A) Conduct as Members and Candidates in the CFA Program
    • B) Reference to CFA Institute, the CFA Designation, and the CFA Program

LM3: Guidance for Standards I–VII

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Standard 1: Professionalism

Standard’s nameDescription
1(A): Knowledge of the LawUnderstand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards) of any government, regulatory organization, licensing agency, or professional association governing their professional activities.

Note that:
– In the event of conflict, comply with the strictest, applicable law to the situation.
– Basically do not associate yourself with law-breakers.
– You must be aware of the all laws where you conduct business. Stating that you’re not aware of the law, hence a violation, is not an acceptable excuse.
1(B): Independence and ObjectivityUse reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities.

Must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another’s independence and objectivity.
1(C): MisrepresentationMust not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

For example, if an external source is used in a report, please cite it.
1(D): MisconductMust 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.

Note that if a member/candidate declares personal bankruptcy, it is NOT a misconduct per se. However if the reason of bankruptcy was due to deceit or fraud, that would be a violation and deemed as a misconduct.

Personal issues that reflect poorly on professional reputation/competence is deemed a misconduct.

Standard 2: Integrity of Capital Markets

Standard’s nameDescription
2(A): Material Nonpublic InformationMembers and candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.

Material information is information that can have an impact on the price of a security, or something an investor wants to know before making an investment decision.

Nonpublic information is simply information that has not been made public.

Analysts are free to act on public and non-material, nonpublic information without risking violation (mosaic theory).
2(B): Market ManipulationMust not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.

Misleading investors by distorting prices (transaction based manipulation) or with false information (information-based manipulation) are not allowed.

Standard 3: Duties to Clients

Standard’s nameDescription
3(A): Loyalty, Prudence, and CareMembers/candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment.

Must act for the benefit of their clients and place their clients’ interests before their employer’s or their own interests. Clients come first!
3(B): Fair DealingMembers and candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities.

Communicate investment recommendations and changes simultaneously.
3(C): Suitability1) When members and candidates are in an advisory relationship with a client, they must:

– Make a reasonable inquiry into a client’s or prospective client’s investment experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this information regularly.

– Determine that an investment is suitable to the client’s financial situation and consistent with the client’s written objectives, mandates, and constraints before making an investment recommendation or taking investment action.

– Judge the suitability of investments in the context of the client’s total portfolio.

2) When members and candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must only make investment recommendations or take investment actions that are consistent with the stated objectives and constraints of that portfolio.

Remember it is not the responsibility of the sell-side analyst (who make recommendations) to determine suitability of investments for your client.

Use regularly updated IPS (updated at least once a year) when making investment decisions.
3(D): Performance PresentationWhen communicating investment performance information, members or candidates must make reasonable efforts to ensure that it is fair, accurate, and complete.

The key here is not to misrepresent past performance, nor promise any future performances.
3(E): Preservation of ConfidentialityMembers and candidates must keep information about current, former, and prospective clients confidential unless:

– The information concerns illegal activities on the part of the client or prospective client,
– Disclosure is required by law, or
– The client or prospective client permits disclosure of the information.

Standard 4: Duties to Employers

Standard’s nameDescription
4(A): LoyaltyIn matters related to their employment, members and candidates must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer.

Understand what you can or cannot do once leaving (or after leaving) an employer. For example, knowing the names of former clients is not confidential, but one must not use any records or work stored in paper/electronic format from previous firm.
4(B): Additional Compensation ArrangementsMust not accept gifts, benefits, compensation, or consideration that competes with, or might reasonably be expected to create a conflict of interest with, their employer’s interests unless they obtain written consent from all parties involved.

Best to obtain employer’s permission before accepting cash or significant perks. Token gifts (of not significant value) such as a pen does not need permission.
4(C): Responsibilities of SupervisorsMust make reasonable efforts to detect and prevent violations of applicable laws, rules, regulations, and the Code and Standards by anyone subject to their supervision or authority.

That said, supervisors’ are not responsible for their subordinates’ behavior.

Standard 5: Investment Analysis, Recommendations and Actions

Standard’s nameDescription
5(A): Diligence and Reasonable BasisMembers and candidates must:

– Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions.

– Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action.
5(B): Communication with Clients and Prospective ClientsMembers and candidates must:

– Disclose to clients and prospective clients the basic format and general principles of the investment processes used to analyze investments, select securities, and construct portfolios, and must promptly disclose any changes that might materially affect those processes.

– Use reasonable judgment in identifying which factors are important to their investment analyses, recommendations, or actions and include those factors in communications with clients and prospective clients.

– Distinguish between fact and opinion in the presentation of investment analysis and recommendations.
5(C): Record RetentionMust develop and maintain appropriate records to support their investment analysis, recommendations, actions, and other investment-related communications with clients and prospective clients.

Standard 6: Conflicts of Interest

Standard’s nameDescription
6(A): Disclosure of ConflictsMust make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients, and employer.

Must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively.
6(B): Priority of TransactionsInvestment transactions for clients and employers must have priority over investment transactions in which a member or candidate is the beneficial owner.
6(C): Referral FeesMust disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from or paid to others for the recommendation of products or services.

Standard 7: Responsibilities as a CFA Institute Member, or CFA Candidate

Standard’s nameDescription
7(A): Conduct as Members and Candidates in the CFA ProgramMembers and candidates must not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation or the integrity, validity, or security of the CFA examinations.

Basically do not discuss/share confidential questions tested in the actual exams.
7(B): Reference to CFA Institute, the CFA Designation, and the CFA ProgramWhen referring to CFA Institute, CFA Institute membership, the CFA designation, or candidacy in the CFA Program, members and candidates must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute, holding the CFA designation, or candidacy in the CFA program.

LM4: Introduction to the Global Investment Performance Standards (GIPS)

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Why was GIPS created?

  • The 2020 GIPS standards has 3 chapters:
    • GIPS Standards for Firms – CFA Institute recommends that candidates read the this specific section in the latest 2020 GIPS standards.
    • GIPS Standards for Asset Owners
    • GIPS Standards for Verifiers
  • GIPS was created to make it easier to compare historical performances between different investment firms, to ensure fair representation and full disclosure of investment performance.
  • In absence of GIPS, these misleading practices are more likely to occur:
    • Representative accounts: Selecting a top-performing portfolio to represent the firm’s overall investment results for a specific mandate.
    • Survivorship bias: Presenting an “average” performance history that excludes portfolios whose poor performance was weak enough to result in termination of the firm.
    • Varying time periods: Presenting performance for a selected time period during which the mandate produced excellent returns or out-performed its benchmark—making comparison with other firms’ results difficult or impossible.

Who can claim compliance?

  • Any firm that actually manages assets may choose to comply with the GIPS standards. That said, firms that compete for business must comply with the GIPS Standards for Firms.
  • Consultants cannot make a claim of compliance unless they actually manage assets for which they are making a claim of compliance.
  • Similarly, software (and the vendors who supply software) cannot be “compliant.” Only a firm managing assets can claim compliance once the firm has satisfied all requirements of the standards.
  • Asset owners may comply with the GIPS standards in the same way as firms if they compete for business.
  • To claim GIPS compliance, a firm must fully comply with all GIPS requirements at a firm-wide basis, not a single product or composite level.
  • Complying with the GIPS standards is voluntary.


  • A composite must include all actual fee-paying, discretionary portfolios managed according to the same mandate, objective or strategy.
    • Fee paying means you should exclude clients (e.g. charity) which pays no fees.
    • Discretionary means the investment management firm has the power to determine and purchase suitable securities for the portfolio, not client-directed.
  • A claim of compliance requires that all fee-paying discretionary accounts managed by the firm be included in at least one composite.


  • Firms that claim compliance with the GIPS standards are responsible for their claim of compliance and for maintaining that compliance, i.e. it is self-regulating.
  • Verification is performed with respect to an entire firm, not on specific composites.
  • Third-party verification of GIPS compliance is optional, although it would bring additional credibility to a firm’s claim of compliance.

CFA Level 1 Ethics Tips

cfa ethics

Talking about Ethics tips warrants a separate article in itself, because there is so much to cover.

Check out our top 10 tips for CFA Ethics for all levels to learn tried-and-tested strategies to ace this topic!

More Cheat Sheet articles will be updated and published continuously. Get ahead of other CFA candidates by signing up to our member’s list to get notified.

Meanwhile, here are other related articles that may be of interest:


4 thoughts on “CFA Level 1 Ethics: Our Cheat Sheet”

  1. Hi thank you so much for the cheat sheets! May I know when will you guys update the Economics & Alternative Investment cheat sheets?


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