Lessons
- CFA Level 2: Ethic & Professional Standards – Introduction
- The Code of Ethics – Short Version of the Six Components
- The Seven Standards for Professional Conduct
- CFA Soft Dollar Standards - Overview
- CFA Soft Dollar Standards
- Research Objectivity Standards (ROS)
- CFA Level II Ethics – Exam Thinking and Recommendations
- The Prudent Investor Rule
Research Objectivity Standards (ROS)
- The Research Objectivity Standards are a set of guiding principles developed by CFAI.
- The ROS are not laws, but a voluntary code of conduct.
- Note: The legal requirements of some jurisdictions may overlap with the intent of an ROS standard.
- The ROS are aligned with the CFAI’s professional standards of conduct. Unlike the Soft Dollar Standards, a firm would not publicly claim compliance to ROS. However, at the member/candidate level, by violating an ROS standard, the individual may also be violating mandatory professional standard of conduct as well.
- Requirements. Each standard is followed by one requirement, not necessarily the only one. CFAI makes further recommendations for compliance.
- Research objectivity policy – must: be written and sent to all employees, contain supervisory procedures, and owned by a senior firm officer.
- Public appearances – firm speaker must disclose any personal or firm conflicts of interest to the audience.
- Reasonable and adequate basis – a supervisory analyst or committee must exist in the firm to review and approve all investment recommendations.
- Firewall – firms must ensure that activities of the investment bank unit do not influence research or recommendations in the investment management unit.
- Analyst compensation – must be aligned with research accuracy over a period of time; cannot be tied to any investment banking activity.
- Subject companies – investment firm cannot promise a company with a specific investment recommendation or stock price target.
- Personal investments and trading – firms must prevent employees from trading in ahead of clients.
- Timeliness of recommendations – must be issued regularly; quarterly is the guidance, with updates as needed in response to significant events.
- Compliance and enforcement – firms must keep records of their internal audit activities.
- Disclosure – firms must disclose all conflicts of interest that affect the firm and covered employees.
- Rating system – firms must establish a rating system that investors find useful in making decisions.
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