Lessons
- Seven Standards of Professional Conduct
- Standard I (A) Professionalism - Knowledge of the Law
- Standard I (B) Professionalism - Independence and Objectivity
- Standard I (C) Professionalism - Misrepresentation
- Standard I (D) Professionalism - Misconduct
- Standard II (A) - Material Non-public Information
- Standard II (B) - Market Manipulation
- Standard III (A) - Loyalty, Prudence, and Care
- Standard III (B) - Fair Dealing
- Standard III (C) - Suitability
- Standard III (D) - Performance Presentation
- Standard III (E) - Preservation of Confidentiality
- Standard IV (A) - Loyalty
- Standard IV (B) - Additional Compensation Arrangements
- Standard IV (C) - Responsibilities of Supervisors
- Standard V (A) - Diligence and Reasonable Basis
- Standard V (B) - Communication with Clients and Prospective Clients
- Standard V (C) - Record Retention
- Standard VI (A) - Disclosure of Conflicts
- Standard VI (B) - Priority of Transactions
- Standard VI (C) - Referral Fees
- Guidance for Standard VII – Responsibilities of a CFA Institute Member or CFA Candidate
Standard III (D) - Performance Presentation
The members must ensure that the investment performance being communicated to the clients is fair, accurate, and complete.
Guidance
- The CFA members should not misstate performance or mislead clients about investment performance
- The CFA members should not misrepresent past performance
- The CFA members should provide complete performance information about any fund or portfolio
- The CFA members should not state or in any way imply the ability to achieve returns similar to returns achieved in the past
Examples of Violation
- Example 1: An investment manager reports to his client that they can expect a 20% growth in the next year. This calculation is based only on the past two years’ performance of the fund. In their disclosure they should have mentioned that this forecast is based on only past two years’ performance.
- Example 2: An investment firm claims compliance with the GIPS standards, but the return calculations are actually not as per the requirements of GIPS standards.
- Example 3: While promoting an investment product, the manager promotes to clients by showing the performance results for a certain period. The performance results are actually simulated, but this information is not disclosed to the clients.
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