Level 3 Reading 1 – CODE OF ETHICS AND STANDARDS OF PROFESSIONAL CONDUCT

As promised I am sharing the running notes I had prepared for my Level 3 exams. Considering the larger group and upcoming December attempt, I considered starting with ethics so that others could also benefit. Your comments are welcome!!!

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

STANDARDS OF PROFESSIONAL CONDUCT
1. Professionalism
2. Integrity of Capital Markets
3. Duties to Clients
4. Duties to Employers
5. Investment Analysis, Recommendations, and Actions
6. Conflicts of Interest
7. Responsibilities as a CFA Institute Member/Candidate
PROFESSIONALISM
A. Knowledge of the Law
B. Independence and Objectivity
C. Misrepresentation
D. Misconduct
A. KNOWLEDGE OF THE LAW
Members and Candidates must understand and comply with all applicable laws, rules, and regulations of any government, regulatory organization, licensing agency, or professional association governing their professional activities. In the event of conflict, Members and Candidates must comply with the more strict law, rule, or regulation. Members and Candidates must not knowingly participate or assist in and must dissociate from any violations of such laws, rules, or regulations
B. INDEPENDENCE AND OBJECTIVITY
Members and Candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities. Members and Candidates 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
C. MISREPRESENTATION
Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities
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
INTEGRITY OF CAPITAL MARKETS
A. Material Non-public Information
B. Market Manipulation
A. MATERIAL NONPUBLIC INFORMATION
Members 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
B. MARKET MANIPULATION
Members and Candidates must not engage in practices that distort prices or artificially inflate trading volume with intent to mislead market participants
DUTIES TO CLIENTS
A. Loyalty, Prudence, and Care
B. Fair Dealing
C. Suitability
D. Performance Presentation
E. Preservation of Confidentiality
A. LOYALTY, PRUDENCE, AND CARE
Members and Candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment. Members and Candidates must act for the benefit of their clients and place their clients’ interests before their employer’s or their own interests
B. FAIR DEALING
Members 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
C. SUITABILITY
When Members and Candidates are in an advisory relationship with a client, they must:
a. Make a reasonable inquiry into a client’s investment experience, risk and return objectives, and financial constraints prior to making an investment recommendation or taking investment action and must reassess and update this information regularly
b. 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
c. Judge the suitability of investments in the context of the client’s total portfolio
When Members and Candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must make only investment recommendations or take only investment actions that are consistent with the stated objectives and constraints of the portfolio
D. PERFORMANCE PRESENTATION
When communicating investment performance information, Members and Candidates must make reasonable efforts to ensure that it is fair, accurate, and complete
E. PRESERVATION OF CONFIDENTIALITY
Members and Candidates must keep information about current, former, and prospective clients confidential unless:
1. The information concerns illegal activities on the part of the client or prospective client
2. Disclosure is required by law
3. The client or prospective client permits disclosure of the information
DUTIES TO EMPLOYERS
A. Loyalty
B. Additional Compensation Arrangements
C. Responsibilities of Supervisors
A. LOYALTY
In 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
B. ADDITIONAL COMPENSATION ARRANGEMENTS
Members and Candidates must 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 interest unless they obtain written consent from all parties involved
C. RESPONSIBILITIES OF SUPERVISORS
Members and Candidates must 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
INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS
A. Diligence and Reasonable Basis
B. Communication with Clients and Prospective Clients
C. Record Retention
A. DILIGENCE AND REASONABLE BASIS
Members and Candidates must:
1. Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions
2. Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action
B. COMMUNICATION WITH CLIENTS AND PROSPECTIVE CLIENTS
Candidates must:
1. Disclose to clients and prospective clients the basic format and general principles of the investment processes they use to analyze investments, select securities, and construct portfolios and must promptly disclose any changes that might materially affect those processes
2. 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
3. Distinguish between fact and opinion in the presentation of investment analysis and recommendations
C. RECORD RETENTION
Members and Candidates must develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients
CONFLICTS OF INTEREST
A. Disclosure of Conflicts
B. Priority of Transactions
C. Referral Fees
A. DISCLOSURE OF CONFLICTS
Members and Candidates must 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. Members and Candidates must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively
B. PRIORITY OF TRANSACTIONS
Investment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner
C. REFERRAL FEES
Members and Candidates must 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
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
A. CONDUCT AS MEMBERS AND CANDIDATES IN THE CFA PROGRAM
Members and Candidates must not engage in any conduct that compromises the reputation for integrity of CFA Institute or the CFA designation or the integrity, validity, or security of the CFA examinations
B. REFERENCE TO CFA INSTITUTE, THE CFA DESIGNATION, AND THE CFA PROGRAM
When 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