Introduction to the Standards of Professional Conduct | CFA Level I Ethics

Before diving into the individual standards, let’s have a quick introduction and learn how to effectively study the standards.

These are the seven standards of professional conduct. Every one of them is important, but for the exam, you’ll want to pay particular attention to Standard 3: Duties to Clients, followed by Standard 5: Investment Analysis, Recommendations and Actions, and Standard 6: Conflicts of Interest. That’s not to say the rest of the standards aren’t important. We’re highlighting these three as they tend to generate the most testable materials for the exam.

Components of Each Standard

Each of these standards is subdivided into a few parts. For each part, there’s the standard itself, which is the specific wording used by the CFA Institute. The guidance goes into the specifics and often discusses the kinds of situations the standard applies to, and the appropriate actions or prohibitions that apply. For the next few lessons, we’ll go through the guidance for each of these standards. There are also recommendations, which are best practices suggested by the CFA Institute, but may not necessarily be a violation if they’re not adhered to.

To be clear, you don’t have to remember the standard numbers, so don’t waste time memorizing them.

Exam Questions on Ethics

Actually, understanding all the standards isn’t hard. You can probably learn and understand all the standards and their sub-sections in just a few hours. Unfortunately, understanding all the standards doesn’t mean that you’ll be able to answer most of the ethics questions in the exam. You’re unlikely to get many straightforward questions that ask you directly what a certain standard says. Rather, you’ll typically get a rather long background story and be asked about your opinion on which standard is or isn’t violated, or the reasons why there’s a violation.

Study Approach

In order to answer these kinds of questions, knowing and understanding the standards is only the first step. After learning each standard, you’re encouraged to pick up your curriculum text to read up on at least a few case studies on the standard you just studied. Look for the section “Application of the Standard”. The examples given by the CFA Institute are important to help you understand the kinds of situations the standard is relevant for, and how the CFA Institute interprets the application of the standard under such situations.

And lastly, as mentioned before, you need to develop the experience and intuition for answering ethics questions, and that can only come from practicing as many ethics questions as possible. You can attempt the practice problems at the end of curriculum reading, the mock exams provided by the CFA Institute, and the end-of-lesson quizzes we provide in this course. Learn to quickly pick up the relevant clues in the question, and apply your understanding of the standards to answer the question.

And that’s it. Let’s dive in and go through the seven standards of professional conduct!