The Seven Standards for Professional Conduct

These are part of all three tests, so memorize them.  They apply to members and candidates.  An extension note is provided for each, to enhance understanding; the extensions represent a single example but are not exhaustive.

1. Professionalism

  • Know the law. Extension: Members discovering or suspecting a legal violation should report this to their supervisor or the firm's compliance department.
  • Preserve independence and objectivity. Extension: Modest gifts to members are allowable, but you must reject offers that would threaten objectivity.
  • Do not misrepresent. Extension: Member may not copy the work of another without citing the source of the material.
  • Misconduct (not engaging in). Extension: Member must not act in a manner that creates a lack of confidence in professional judgment, like drinking on the job.

2. Capital Market Integrity

  • Material non-public info - Do not act or cause others to act when you have it. Extension: Info can be deemed material if it is knowledge that an investor would want to know before making a buy/sell decision.
  • Market manipulation - not acting to distort prices of inflate trading volumes with the intent to deceive market participants. Extension: Members must not spread false rumors designed to drives prices up, so a position can be sold at an artificially high price.

3. Duties to Clients

  • Loyalty, prudence and care. Extension: An investment manager should handle client transactions with the same level of care that he/she would apply to his/her own assets.
  • Fair dealing. Extension: If a recommendation has recently changed, then the investment manager should inform the client seeking to implement an investment decision to the contrary.
  • Suitability. Extension: If a manager is investing to a dedicated strategy, such as large cap domestic stocks, then he/she must adhere to that strategy.
  • Performance presentation. Extension: Members cannot imply that past performance is an indicator of future returns.
  • Confidentiality. Extension: the member/candidate must keep client (current, former, and prospective) info confidential unless: info concerns illegal client activity, the law requires disclosure, or the client permits disclosure.

4. Duties to Employers

  • Loyalty. Extension: Member cannot engage in activity that competes with their employer's interest.
  • Additional compensation. Extension: Members must obtain written consent from all stakeholder parties, when third party compensation could even potentially create a conflict of interest with the employer.
  • Responsibilities of supervisors. Extension: Members should decline in writing to accept supervisory responsibility when the firm does not have an adequate internal compliance system.

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