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 (C) - Suitability
- Before making an investment recommendation or action, the members must reasonably enquire into the client’s investment experience, his risk/return objectives, and any limitations.
- Before making an investment recommendation or action, the members must determine that the investment being advised is suitable for the client in terms of the client’s objectives, financial goals, and limitations.
- The member must also ascertain whether the investment being recommended is suitable in context of the client’s overall portfolio.
Examples of Violation
- Example 1: An investment manager recommends two different clients with different risk profiles the same portfolio allocation.
- Example 2: An investment manager learns that one of his client’s financial situation has changed as he lost lots of money in his business. This affects the client’s investment objectives but the investment manager does not update his investment policy statement to reflect the change objectives.
- Example 3: For a particular high-income mutual fund, an investment manager decides to purchase a growth stock. This is against the fund’s investment mandate.
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