CFA Exam Level I

Ethical and Professional Standards

Code of Ethics and Standards of Professional Conduct
Ethical Behavior most likely to arise from situational influences.
Cfa will consider complaint from anyone
The Code of Ethics
1. Act with integrity, competence, diligence, and 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 clientes 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.

Code of Ethics X Standards of Conduct

Code of Ethics:
 Ethical Framework;
 Related to profession;
Standards of Conduct:
 Not required in a code of ethics
 benchmark for pratical.
 Encouraged but not required to report violations
 Disassociate from ilegal activities, and strive to cease such. Encouraged but not required
to report violations


Standard of Professional Conduct

1. Standard I: Professionalism:
a. Knowledge of the Law: country with stricter law (*license’s country applies too).
Violation of law during grace period inflicts violating this standard. Disassociate from
ilegal activities, and strive to cease such. Required to inform supervisor and legal council.
Encouraged but not required to report violations to CFA or the regulator agency, but the
law might require.
b. Independence and Objectivity: must refuse even educational events, but simple gifts are
allowed. Encoureges compliace rules to have formal value limit. Business trip ok, if
location is hard to reach.
 c. Misrepresentation: factual information may be used without acknowlegdment (ex
Central Banks, risk agencies), BUT CREATIVE CONTENT (charts, analysis) MAY NOT.
Quotes must be identified
d. Misconduct: dishonesty, fraud or deceit, even on personal life, if it reflects poorly on his
professional life. Background checking on potential employees are encouraged too.
2. Standard II: Integrity of Capital Markets
a. Material Nonpublic Information: Material information = any information that AFFECTS
THE MARKET. Mosaic Theory uses public information and nonmaterial, non-public
information to create information to be traded on. Use of Firewall to prevent insider
trading. Encourages the company to release the information publicly, and no act until
then. Restricted list to prevent many employees from trading.
b. Market Manipulation: block trade is ok
3. Standard III: Duties to Clients
a. Loyalty, Prudence, and Care: soft dollar = brokerage used to obtain products and
services to aid the company assisting the cliente. ALL brokerage must benefit the client.
Proxy vote according to each client. Portfolio managers of active funds must vote in ALL
proxies, managers of passive funds should vote ONLY if they have a definitive opinion.
Vote or not in all proxy?
b. Fair Dealing: all clientes must be treated on a FAIR level, and not equal
c. Suitability: necessário avaliar o perfil dos clientes com o IPS (Investment Policy
statement).
d. Performance Presentation
e. Preservation of Confidentiality
4. Standard IV: Duties to Employers
a. Loyalty: é possível contatar ex-clientes desde que não tenha impeditivos contratuais, e
que a recisão de contrato já tenha sido feita
b. Additional Compensation Arrangements: may accept but need consente from
supervisor.
c. Responsibilities of Supervisors: supervisores responsáveis pelo time, podem delegar mas
é necessário aplicar políticas que garantam as práticas éticas ente todo time
5. Standard V: Investment Analysis, Recommendations, and Actions
a. Diligence and Reasonable Basis: pesquisa feita com integridade e de forma razoável
b. Communication with Clients and Prospective Clients:
c. Record Retention: manter todos registros das análises
6. Standard VI: Conflicts of Interest
a. Disclosure of Conflicts
b. Priority of Transaction: Clients trades ahead of own trades
c. Referral Fees: Comissões permitidas mas precisam ser divulgadas
7. Standard VII: Responsibilities as a CFA Institute Member or CFA Candidate
a. Conduct as Participants in CFA Institute Programs: material é exclusivo do CFA Institute e
não pode ser divulgado, apenas opiniões podem ser divulgadas sobre o exame, sem
expor números e tipo de perguntas.
b. Reference to CFA Institute, the CFA Designation, and the CFA Program

Global Investment Performance Standards

Sections
1. Fundamentals of Compliance;
2. Input Data;
3. Calculation Methodology;
4. Composite Construction;
5. Disclosures;
6. Presentation and Reporting;
7. Real Estate;
8. Private Equity;
9. Wrap Fee/Separatly Managed Account Portfolios
Key points
 Voluntary, minimum standards
 Mix of requirements and recommendations, must be adhered to with the goal of full disclosure
and fair representation (which likely requires going beyond the minimum GIPS requirements)
 Only investment firms NOT individuals can claim compliance
 Compliance must be on a firm-wide basis, NO partial compliance is allowed
 Full disclosure is mandated (no cherry-picking performance)
 Composites must include ALL fee-paying, discretionary portfolios
 It covers all asset classes, NO model portfolio or simulations
 Data integrity is paramount to the process
 Provides standards where regulated industry standards are still lacking
 The GIPS is constantly evolving with standards getting STRICTER over time
 It fosters the notion of “self regulation” within the industry
 No non-discretionary portfolios, but non-fee paying portfolios may be included: non
-discretionary = investment decisions not made by portfolio manager
Mandatory Disclosures under GIPS
 If they have met all requirements using the appropriate compliance statement (verbatim!)
 Definition of the firm and description of composites (with creation date) and benchmarks
 If they are presenting gross of fees and any fees deducted
 If presenting net of fees, if model or actual management fees are deducted
 Currency used in presentation
 Measure of internal dispersion
 Fee schedule
 Use and extent of leverage, derivatives and short positions
 Date, description and reason for redefinition of firm or composites
 Minimum asset levels for composites
 Treatment of withholding taxes, dividends, interest and capital gains
 Bundled fees and the types of bundled fees
 Sub-advisors and the period in which they were used
 Any portfolios that were not valued at month end or last business day
 Use of subjective unobservable valuation inputs
 If no benchmark is used and why
 Custom benchmarks used; description, date of creation, components, weights and rebalancing
process
 Whether the performance of a past firm or affiliation is linked (only appropriate if substantially
all decision makers came over to new firm, the process remains substantially the same, and the
firm has documentation of the performance history).
Presentation and reporting guidelines under GIPS
 Total benchmark return for each period must be presented
 Composite assets at the end of each year
 Total firm assets or % of firm assets in each composite
 Returns of less than one year cannot be annualized
 % of composite in non-fee paying portfolios
 % of composite in bundled fee portfolios
 5 years of GIPS compliant performance or since inception if 5-years not available
 Firms must add one year each year until at least ten years of data is reported
 * Be able to calculate the income return and capital return for real estate funds.
GIPS Valuation Hierarchy
If the asset’s actual market value is not available, need to follow this hierarchy:
 Prices of similar assets in active markets
 Prices of similar assets in inactive markets
 Observable market inputs other than prices such as dividends, cash flows for pricing models
 Subjective or unobservable inputs like discount rates and projections
Real Estate
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Private Equity
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