Ethics is the highest-weighted topic on the CFA Level 1 exam. It covers the CFA Institute Code of Ethics, Standards of Professional Conduct, and the Global Investment Performance Standards (GIPS). Mastering this topic is essential — not only for passing the exam but for building a career grounded in integrity.
The CFA Institute Code of Ethics requires members and candidates to act with integrity, competence, diligence, and respect. Members must place the integrity of the investment profession and client interests above their own. The six components cover acting ethically, practicing with competence, using reasonable care, maintaining independence, and promoting the integrity of capital markets.
Standard I covers four sub-standards: (A) Knowledge of the Law — members must understand and comply with all applicable laws and regulations; (B) Independence and Objectivity — members must maintain independence in their professional activities; (C) Misrepresentation — members must not knowingly make misrepresentations; (D) Misconduct — members must not engage in any professional conduct involving dishonesty, fraud, or deceit.
This standard addresses loyalty, prudence, and care owed to clients. Key sub-standards include: (A) Loyalty, Prudence, and Care — act for the benefit of clients; (B) Fair Dealing — deal fairly with all clients when providing investment recommendations; (C) Suitability — make reasonable inquiry into a client's investment experience and objectives; (D) Performance Presentation — present performance information fairly; (E) Preservation of Confidentiality — keep client information confidential.
Members must exercise diligence, independence, and thoroughness in analyzing investments, making recommendations, and taking investment actions. (A) Diligence and Reasonable Basis — have a reasonable basis for analysis and recommendations; (B) Communication with Clients — disclose the basic format and general principles of investment processes; (C) Record Retention — develop and maintain appropriate records.
The Global Investment Performance Standards (GIPS) are a set of standardized, industry-wide ethical principles that provide investment firms guidance on how to calculate and present their investment results to prospective clients. GIPS aim to ensure fair representation and full disclosure of investment performance. Firms must include all actual, fee-paying, discretionary portfolios in composites.
Used in performance presentation under GIPS to calculate portfolio returns.
GIPS-compliant method that eliminates the impact of external cash flows on portfolio performance.
A systematic approach to resolving ethical dilemmas in investment practice.
Global Investment Performance Standards require firms to present performance fairly.