Guidance of Standards

I. Professionalism

Standard I is broad in scope and is directed toward competence within a small-business environment. This standard makes it clear that high ethical standards must apply even when an issue hasn’t been identified in writing.

Standard I(A): Knowledge of the Law

Standard 1(A) – Knowledge of the Law specifies that investment professionals must comprehend and adhere to all applicable laws, as well as a framework for resolving ethical dilemmas.

Relationship Between the Code, Standards, and Law

Investment professionals may operate in countries where certain actions are not regulated, or where local laws differ from the CFA Institute’s Code and Standards. In such cases, they must follow whichever rule, the law or the Code, is stricter.

“Applicable law” refers to the legal framework that governs a member’s or candidate’s conduct, which can vary depending on the situation. The stricter rule is the one that places heavier restrictions or demands greater effort to safeguard client interests. For instance, if local law does not require disclosure of referral fees, but the Code and Standards do, then disclosure is mandatory under the Code.

Key principles include:

• Professionals must comply with all relevant laws and regulations tied to their work.
• They must avoid behavior that breaches the Code and Standards, even if such conduct is legally permissible.
• When no law exists, or when the Code sets a higher bar than local law, the Code and Standards must be followed.

Meeting legal requirements is only the baseline. Acting beyond those minimums—such as prioritizing client protection or demonstrating stronger ethical judgment—reinforces Standard I(A).

CFA Institute members must comply with the Code of Ethics, Standards of Professional Conduct, Rules of Procedure, and Membership Agreement. Candidates, though not members, are bound by similar obligations, including the Candidate Agreement, exam regulations, and the Candidate Pledge.

Responsibility for Others’ Misconduct

Members and candidates are accountable if they knowingly assist or participate in violations. While they are expected to understand relevant laws and rules, they may not always recognize misconduct if unaware of the full facts. Standard I(A) applies when they know—or reasonably should know—that their actions contribute to a breach.

If they suspect illegal or unethical activity by colleagues, employers, or clients, they must distance themselves from it. In severe cases, this may mean resigning from a job. Intermediate steps include reporting concerns to supervisors or compliance departments, removing their name from reports, refusing assignments, or declining to work with certain clients. Failure to act, while remaining associated with misconduct, can be seen as complicity.

Although not mandatory unless required by law, reporting violations (“whistle-blowing”) may be advisable. CFA Institute encourages members, candidates, clients, and the public to report misconduct through its Professional Conduct Program.

Investment Products and Cross-Border Compliance

Professionals involved in designing or offering investment products must consider the laws of both the country of origin and the markets where the products are sold. Cross-border transactions often involve multiple jurisdictions, which can create uncertainty. In such cases, members and candidates should seek guidance from compliance teams or legal counsel to ensure proper adherence.

Global Application

Those working across multiple jurisdictions may face conflicting rules. If local law is stricter than the Code, it must be followed. Otherwise, the Code and Standards apply.

For example:

• In countries with no securities laws, the Code governs.
• In countries with weaker laws than the Code, the Code governs.
• In countries with stricter laws, those laws take precedence.
• If laws defer to the client’s home country or the locality of business, professionals must follow whichever standard is stricter.

Compliance

When providing services to clients in another country, where financial sector laws may differ, CFA members must adhere to the strictest applicable regulations. This may be one’s local laws or those of a client.

In some cases, it may also mean a hybrid of the two. In other cases, local codes of ethics may be more lax than the CFA Code of Standards.

In these instances, members are required to adhere to CFA standards. Please refer to Table 1(A) for a few detailed examples.

Example 1: Conflicting Cross-Border Regulations

Chen, a portfolio manager for a global investment firm based in London, manages accounts for clients in both the United Kingdom and a smaller emerging market, Karibia. Karibia’s securities laws do not prohibit trading on material nonpublic information. While on a research trip, Chen overhears a Karibia-based corporate director discussing a confidential, impending merger that will significantly boost the target company’s stock price. Upon returning to London, Chen buys a substantial number of shares of the target company for his clients’ accounts, believing that because the trade was executed in London and Karibia has no insider trading laws, he has not violated any rule.

Comment: Chen violated Standard I(A) Knowledge of the Law. Members and candidates must comply with the strictest applicable law, rule, or regulation. Even though the trade was placed in the UK and is legal in Karibia, the UK has strict laws prohibiting trading on material non-public information. Chen is required to follow the stricter UK law, which prohibits acting on such information. He must dissociate from the activity and cannot trade based on the overheard information.

Violation

CFA members will be held in violation of Standard 1(A) – Knowledge of the Law when they participate in violating any applicable law or the Code of Standards. Although members are expected to adhere to the Code of Standards, the CFA recognizes that members may not be fully informed of all facts giving rise to violations of the law. Therefore, it is the willful disregard of ethical requirements that determines a violation.

The CFA urges members to report alleged violations, though failure to report does not necessarily constitute a violation. Wherever local laws require investment professionals to report illegal behavior, members are expected to comply. All members are encouraged to consult with legal and compliance counselors for advice in this regard.

Question

His U.S. employer has offered McIntyre a temporary investment analyst assignment in Singapore. John is well-versed in investment regulations within the United States, knowing that in most cases, these laws are more stringent than the CFA Code of Standards. When he arrives in Singapore, he is surprised to learn that the financial industry’s laws are stricter than those in his home office. To what level of regulation must McIntyre hold his professional conduct?

1. United States laws and regulations
2. Singapore laws and regulations
3. Code of Standards

Solution

The correct answer is B.

CFA standards bind McIntyre to adhere to the strictest applicable regulations. In this case, although he operates in Singapore, he must comply with Singaporean laws and regulations.

Standard I(B)-Independence and Objectivity

Standard I(B) – Independence and Objectivity addresses the issue of gifts, payments, and favors that may compromise one’s objectivity and service to clients. This includes advisors, analysts, and credit raters.

Guidance

CFA members and candidates must maintain independence and objectivity so their work reflects unbiased judgment free from conflicts of interest. They should avoid situations that could compromise, or even appear to compromise, their impartiality in investment recommendations or actions.

• Personal responsibility: Analysts must ensure research reports and recommendations express their genuine views, stated clearly and without bias.
• External pressures: Corporations, brokers, issuers, and rating agencies may attempt to influence analysts with gifts, favors, or entertainment. Modest gestures may be acceptable, but anything that could reasonably impair independence must be refused.
• Client gifts: Gifts from clients differ from those offered by outside parties. They may be considered additional compensation, but must be disclosed to employers before acceptance—or immediately afterward if prior disclosure is not possible. This ensures transparency and allows employers to assess whether such benefits affect objectivity.

Investment Banking Relationships

Professionals may sometimes face pressure from their firms to issue favorable research or recommendations on companies involved in ongoing or potential business deals. Those in sales or marketing roles must be especially cautious to maintain objectivity when advising clients.

In many firms, research analysts collaborate with investment bankers to evaluate prospective clients. While this cooperation can improve risk assessment and pricing accuracy, it also creates conflicts of interest. Such collaboration is acceptable only if conflicts are properly managed, and any unavoidable conflicts must be disclosed in line with Standard VI(A).

Performance Measurement and Attribution

Analysts working in performance measurement may encounter requests to adjust benchmarks or reporting methods to mask poor results. They must resist internal or external pressures and remain objective, ensuring calculations and analyses are accurate and unbiased.

Public Companies

Companies often pressure analysts to issue positive reports. Some analysts attempt to soften language or use vague wording to avoid conflict, but this can mislead investors who expect clear, transparent analysis. Analysts are responsible for conducting thorough, fact-based research using diverse sources—such as filings, management discussions, competitors, and customers–and must communicate their findings independently. If companies restrict access to analysts with negative views, analysts must still uphold their duty to provide objective recommendations. CFA Institute’s Best Practice Guidelines Governing Analyst/Corporate Issuer Relations offers further guidance.

Credit Rating Agencies

Credit rating agencies assess fixed-income products, but analysts working there may face pressure from sponsoring companies. Agencies must establish safeguards to prevent undue influence, especially when they also provide advisory services. Analysts must follow industry standards and ensure ratings are independent. Users of ratings should remain aware of potential conflicts and may need to verify ratings independently.

Influence on Manager Selection

Members and candidates may be involved in hiring or being hired for investment mandates. Independence must be preserved in both roles. Hiring representatives must not solicit gifts or contributions, and those seeking mandates must not offer them. Even indirect benefits, such as donations to charities or political causes linked to decision-makers, can compromise objectivity. The “pay-to-play” scandal in U.S. pension funds highlighted how political contributions were used to secure allocations, leading to stricter laws and reporting requirements.

Issuer-Paid Research

Some companies hire analysts to produce research reports to increase visibility. While this can fill coverage gaps, it introduces conflicts of interest. Analysts must conduct independent, thorough research and disclose compensation arrangements. Best practice is to accept only a flat fee, unrelated to conclusions, and avoid equity-based or performance-linked compensation that could bias results.

Travel Funding

Accepting paid travel from companies can compromise independence, even if it provides access to executives or facilities. Best practice is to use commercial travel funded by the analyst’s firm. If commercial options are unavailable, modest arrangements may be acceptable for legitimate research purposes, such as property tours, but analysts must remain cautious to avoid undue influence.

Example: Vendor-Provided Technology Analysis

Vaughn, a technology sector analyst at a mid-sized investment firm, is evaluating a new software company, CloudNine. CloudNine’s management offers to fly Vaughn and his spouse on a private jet to their headquarters, put them up in a five-star hotel for three nights, and provide tickets to a major league sporting event. CloudNine states this is to give Vaughn an “uninterrupted, in-depth look” at their operations, including access to their senior engineers. Vaughn accepts the package, reasoning that the quality of the access and information will significantly improve his research report.

Comment: Vaughn violated Standard I(B) Independence and Objectivity. The lavish travel and entertainment package far exceeds customary, ordinary business-related entertainment and could reasonably be expected to compromise his objectivity. Best practice is to use commercial transportation and pay for his own lodging. Vaughn should decline the offered benefits or, at a minimum, seek prior approval from his firm’s compliance department and disclose the arrangement in his final research report.

Violation

To avoid violation of Standard I(B) – Independence and Objectivity, CFA members are encouraged to create a restricted list of analysts and rating agencies who refuse to distribute appropriately negative research for certain companies. Also, CFA members should restrict third-party travel cost arrangements to avoid ethical conflicts, limit gifts, restrict employees’ investment in IPOs to limit conflicts of loyalty, establish a formal independence and objectivity policy, and appoint an officer to oversee compliance with these concerns.

Question

Grey Gordon, CFA, is a securities analyst assigned to K-Trail Flatbeds, a major producer of trailers for the trucking industry. K-Trail’s headquarters are located in Meadow Lake, Saskatchewan, approximately four hours by automobile from the nearest airport. Gordon contacts K-Trail’s management to gather information for a report he is preparing; the chief financial officer invites Gordon to meet the management team at K-Trail, indicating that he will send the company’s private jet to fly Gordon to Meadow Lake and return him home the same day.

There are currently no commercial flights between Gordon’s current location and Meadow Lake, Saskatchewan. If Gordon accepts the offer and makes the trip to K-Trail’s headquarters on the corporate jet, Gordon:

1. Has not violated Standard I(B) – Independence and Objectivity.
2. Has violated Standard I(B) – Independence and Objectivity unless he discloses the trip and the payment of his travel expenses in his report on K-Trail.
3. Has violated Standard I(B) – Independence and Objectivity unless he reimburses K-Trail for the cost of the trip.

Solution

The correct answer is A.

Standard I(B) – Independence and Objectivity requires members to maintain independence and objectivity. Members should encourage clients to limit the use of corporate aircraft, but exceptions may be made if transportation would otherwise be unavailable or inefficient. This exception to the rule is of major importance.

Standard I(C)- Misrepresentation

Standard I(C) – Misrepresentation indicates that CFA members must not knowingly misrepresent information related to investment analysis, recommendations, or professional actions.

Guidance

Misrepresentation can be defined as the omission of information, the manipulation of facts related to securities, or the giving of false impressions about a firm. This relates to oral, electronic, and written communication.

Members are prohibited from guaranteeing returns on unstable investments. Exceptions to this are cases in which the investment itself has guarantees built into its structure, or in which a firm has committed to covering any loss incurred by the client.

As it relates to representing a firm’s reputation, it is unethical to misrepresent professional credentials, the performance of a firm, or experiences with a category of investment. Likewise, individual investment professionals may not falsify their performance records.

A special mention of social media is made within Standard I(C) – Misrepresentation. The CFA Institute recognizes that, in some cases, the anonymous nature of communication on social media platforms may prompt members to behave differently than they would on more traditional platforms. In all cases, investment professionals are urged to provide as much truthful information as is appropriate in a public setting. It may be tempting to bolster one’s achievements or qualifications within online chat rooms, even between other investment professionals. This is strictly prohibited regardless of the purported anonymity of the forum.

All analysis and statistical data used in written communication created outside a member’s firm must be sourced. Failure to do so will result in plagiarism, which misrepresents the author of said work. The exception to these is cases in which agents have developed data within the same firm.

Example: Cherry-Picking Social Media Testimonials

Delgado, a wealth manager, has a new client who is concerned about investment risk. To reassure the client, Delgado states, “All my clients have been extremely satisfied with my risk management, and none of them have ever lost money in a down market.” On his firm’s social media page, Delgado posts a graphic stating “100% Client Satisfaction & Capital Preservation Rate.” The graphic is based on a survey of only his three largest, most conservative clients, who experienced no losses in a recent minor market dip. Delgado ignores the fact that 15 other clients lost money during the same period, and he did not survey them.

Comment: Delgado violated Standard I(C) Misrepresentation. His statements to the new client and the social media post are misleading because they omit material facts and create a false impression. He implies a universal track record of client satisfaction and capital preservation when his data is incomplete and represents only a small, select group of clients. He must provide fair, accurate, and complete information, including the actual performance and satisfaction of all his clients.

Violation

Knowing misrepresentation means a member knew or should have known that the information was being distorted and that it could have significantly affected investment outcomes.

To prevent violation of Standard I(C) – Misrepresentation, all professionals within a firm should know the limits of an employer’s qualifications and services. Additionally, a firm may choose to restrict the agents who are permitted to speak for the organization.

Regarding external communications, one should verify information from outside sources. Additionally, a firm is obligated to update its web pages promptly.

Finally, a formal plagiarism policy should be established to ensure that data is credited to its appropriate source in all forms of communication.

Question

Anna Roy, a CFA member and investment analyst, attends a client lunch where a portfolio manager professes, “You can be sure we’ll outperform the Real Estate index this year due to our fine research analysts.” Roy recognizes this statement as:

1. A violation of plagiarism policy under Standard I(C) – Misrepresentation.
2. A violation concerning the prohibition of guaranteeing returns under Standard I(C) – Misrepresentation.
3. Flattering and appropriate as a marketing technique.

Solution

The correct answer is B.

CFA members are forbidden from guaranteeing a specific rate of return on investments. Therefore, the statement violates Standard I(C) – Misrepresentation.

Standard I(D)- Misconduct

Standard I(D) – Misconduct addresses issues of honesty vs. deceit. It indicates that CFA members must not compromise their reputation, integrity, or competence. Standard I(D) – Misconduct contrasts with Standard 1(A) – Knowledge of the Law in that Standard 1(A) addresses applicable laws, and Standard 1(D) is concerned with all behavior that could impact professional integrity.

Compliance

Preservation of integrity covers a broad scope of behavior. It can be interpreted as refraining from drinking alcohol during business hours and as conducting due diligence on recommendations. Any behaviors that upset a member’s integrity or threaten the reputation of CFA Institute should be called into question. Therefore, whether the perception of misconduct concerns social behavior or professional competence, CFA members must hold themselves to the highest management standards.

Standard I(D) covers conduct during normal business hours and in cases where a CFA member participates in financial services to charities or other non-profit organizations. For example, an investment professional may volunteer to serve a charity by negotiating the purchase of capital equipment. In doing so, if he pays the overall purchase price to compensate for time and trouble without express permission, it can be viewed in the light of Standard I(D) – Misconduct.

Example 4: Extracurricular Activity Damaging Professional Reputation

Okafor, a CFA charterholder and senior fixed-income analyst at a pension fund, is an avid participant in online financial forums under a pseudonym. In one heated debate about emerging market debt, he becomes angry with another user. Okafor uses his platform to publish what he knows to be false and malicious information about the other user’s professional history, accusing them of fraud and incompetence. The exchange is publicly traced back to Okafor’s real identity and is widely circulated on social media, leading to negative press articles linking him to unethical online behavior.

Comment: Okafor violated Standard I(D) Misconduct. His actions—knowingly publishing false and malicious statements—involve dishonesty and deceit. Furthermore, his conduct reflects adversely on his professional reputation, integrity, and competence, even though it occurred outside of his direct workplace. By identifying himself as an investment professional (implicitly through the tracing of his identity), his damaging behavior harms the perception of the entire investment profession.

Violation

Standard I(D) – Misconduct expressly communicates that following the CFA Code of Standards to the letter is insufficient. Members must also hold themselves to high moral ideals by upholding the spirit of the CFA Ethics and Standards.

A common concern related to misconduct is professional expenses. For example, an employee may augment expense receipts for client meetings, insurance reimbursement, or travel costs. All of these requests for expense payments would be considered an intent to defraud and, therefore, are a violation of Standard I(D) – Misconduct.

Question

Which of the following is least likely to be a violation of Standard I(D) – Misconduct?

1. Being intoxicated at the office
2. Being convicted of a misdemeanour public nuisance over a holiday weekend

1. I only
2. II only
3. None of the above

Solution

The correct answer is B.

According to Standard I(D), “Members shall not engage in any professional conduct involving dishonesty, fraud, deceit, or commit any act that reflects adversely on their professional reputation, integrity, or competence.” The standard is not intended to regulate one’s personal behavior. Therefore, a conviction for misdemeanor public nuisance could be considered a passable act, not a violation of Standard I(D) – Misconduct.

Standard I(E)- Competence

Members and Candidates must act with and maintain the knowledge and skills necessary to fulfill their professional responsibilities.

Guidance

Standard I(E) requires CFA members and candidates to maintain the knowledge, skills, and diligence necessary to deliver high-quality professional service. The Code of Ethics reinforces this by requiring integrity, competence, and continuous improvement, both personally and within the profession.

Competence varies by role and circumstances, but the principle is clear: professionals must have the expertise, experience, and ability to perform their duties effectively.

• Knowledge: Information applied to tasks and decisions.
• Skills: Practical capabilities to complete role-specific functions.
• Abilities: Behaviors and attitudes that support effective outcomes.

Competence does not guarantee success in every decision—losses or errors can occur even with diligent work. It is not defined solely by education; experience and role-specific expertise matter. For example, an auditor may lack competence in performance reporting, and a consultant may lack skills in sustainable investing if the consultant is unfamiliar with that area.

Because responsibilities evolve, professionals must continually update and refine their capabilities. Standard I(E) emphasizes not only achieving competence but also maintaining it through ongoing development.

Compliance Practices:

To sustain competence, members and candidates should:

• Engage in continuing education or professional development.
• Pursue certifications or designations.
• Attend seminars, conferences, or training programs.
• Conduct self-study through reading and research.
• Participate in professional groups or networks.
• Acquire new skills when responsibilities change.

Example: Supervising a New Asset Class

Shibata, a portfolio manager, has successfully managed large-cap equity portfolios for a decade. Her firm asks her to take over management of a new, complex cryptocurrency fund. Shibata understands blockchain technology only superficially but believes her general investment skills are transferable. She does not take any courses on cryptocurrency valuation, risk management, or custody, nor does she consult with external experts. She begins actively trading digital assets for the fund immediately, using her equity trading strategies.

Comment: Shibata violated Standard I(E) Competence. Her professional responsibilities have changed to include managing a new, complex asset class with different risk and return characteristics. By failing to acquire the specific knowledge and skills necessary to competently manage cryptocurrency investments, she is not acting with the required competence. She must first gain the necessary expertise through study, training, or hiring qualified staff before taking investment action for the fund.

Violation

A member or candidate violates the standard when they fail to maintain the knowledge, skills, and abilities required to perform their professional responsibilities at an appropriate level. Examples of violations include:

• Failure to maintain professional development and ignoring new developments in your field of work.
• Neglecting ongoing learning and never updating their skills or knowledge.
• Not preparing for expanded responsibilities.
• Overstating ability without the necessary skills.

Question

Emma Clark, CFA, a senior manager in the treasury department, has recently been promoted to oversee her firm’s alternative investments division. She doesn’t have much prior experience with private equity or hedge funds, but she believes her treasury experience and prior achievements are sufficient. She immediately begins advising clients on alternative investment products without additional training or professional development.

Which of the following options is Emma most likely in violation of Standard I(E) – Competence of?

1. She would violate Standard I(E) – Competence by overstating her ability without the necessary skills.
2. She would violate Standard I(E) – Competence by engaging in misrepresentation.
3. No violation would occur.

Solution

The correct answer is A.

Clark has accepted responsibilities in an area where she lacks the necessary knowledge and skills and has not taken steps to develop them. This constitutes an overstatement of her ability without acquiring the professional competence required, thereby violating Standard I(E) – Competence.