- 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 (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.
- There should be no discrimination against any clients when providing investment recommendations or taking any investment actions.
- All clients must have fair chance on every recommendation and investment action
- If a client is unaware of a recommendation, and the client wants to place an order on the same stock, the member must advise the client about the recommendation and make necessary change if required before accepting trade order.
- “Fair” treatment does not mean “equally”. For each client any investment action should be taken after considering his investment objectives and circumstances.
- An investment firm may provide different levels of service to different customers. This is considered okay as long as the same is disclosed, and doesn’t disadvantage any client.
Examples of Violation:
- Example 1: An analyst selectively shares the purchase recommendation of a new company with a few clients before the recommendation is sent to all clients.
- Example 2: A company’s pension fund is managed by a bank. The company finds out that the company’s fund managed by the bank has underperformed compared to the bank’s own similar fund. On investigation it is found out that the bank’s pension fund manager gives priority to the bank’s own funds over the client’s funds. For example, when there is a new purchase recommendation for a security, the securities are first purchased for the bank’s own fund and then for the client’s funds.
- Example 3: The investment manager at a money management firm is on the verge of losing a client because of poor performance. In order to retain the client, the investment manager buys certain securities and holds them for a few days without allocating them. After that it allocates the profitable ones to the losing client, and the loss making securities to other clients. This way he is able to improve the performance for this client and manages to retain it.
- Example 4: An investment manager sends new recommendations to all clients by email, but to a selected few he calls and informs personally.
- Example 5: When new issues or secondary offerings are available or are being offered by the firm or if the firm is part of a selling syndicate, all clients for whom the security is appropriate are to be offered a chance to take part in the issue. If the issue is oversubscribed, then the issue is to be prorated to all subscribers. If the firm fails to do so, then it’s a violation of the Standard.
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