CFA Ethics
Past Questions

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**The reasoning** The CFA Institute is built on a foundation of **ethical conduct** and fiduciary duty. At its core, finance professionals are entrusted with other people's money and futures. The CFA Code of Ethics explicitly places **integrity, competence, and putting clients' interests first** above all else. This isn't just nice-to-have — it's the profession's bedrock. Without trust, the entire financial system collapses. So before profit, before performance, comes the duty to act honestly and prioritize the client's welfare over your own gains. **Why the wrong options tempt you** - **A (Maximise commissions)**: This sounds business-like, but it's self-serving — exactly what ethics guard *against*. It prioritizes the advisor over the client. - **C (Beat the market)**: Performance matters, but ethics come first. You can't lie or cheat to get returns. - **D (Avoid taxes)**: Tax planning is legitimate, but tax evasion isn't, and neither is the primary ethical concern. **Quick takeaway** "In professional finance, your reputation for integrity is worth more than any commission — clients' trust always comes first."

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**The reasoning** In professional investment work (covered by standards like CFA Institute's Code of Ethics), **misrepresentation is strictly prohibited**. Here's why: investors trust professionals with their money based on accurate information. If an analyst lies about qualifications, distorts facts, or misleads clients about investment performance, it destroys trust and can cause serious financial harm. Think of it like this: would you trust a doctor who lied about their credentials or a product's side effects? Same principle. Investment professionals have a **fiduciary duty** — a legal and ethical obligation to act honestly and in their clients' best interests. **Why the wrong options tempt you** - **A (Encouraged)** and **D (Required)**: These are obviously wrong, but test-makers include them to catch students who rush or aren't reading carefully. - **C (Optional)**: This is the real trap! You might think "maybe it's just a guideline?" No — ethics codes make honesty *mandatory*, not a suggestion. **Quick takeaway** Honesty isn't optional in finance — misrepresentation is always prohibited because trust is the foundation of professional investment work.

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**The reasoning** This tests your understanding of **professional ethics and fiduciary duty**. When someone provides professional services (whether as a financial advisor, lawyer, accountant, or auditor), they must act in their client's best interest. A "conflict of interest" occurs when your personal interests might compromise your professional judgment. For example: If you're recommending investments to a client but you secretly earn commission from certain companies, that's a conflict. You MUST disclose it so the client knows your advice might be biased. This transparency protects the client and maintains trust in the profession. **Why the wrong options tempt you** - **A & D (Hobbies/Vacations)**: These seem personal, and you might think "I should share personal info to build rapport." But these don't affect your professional judgment, so they're irrelevant. - **C (Salaries)**: This feels business-related, but your salary doesn't create bias in advising clients. It's private information. Only conflicts of interest directly threaten your ability to serve clients fairly. **Quick takeaway** Disclose anything that could make your advice biased — that's what conflicts of interest means; personal hobbies and salary details don't compromise your professional judgment, so they stay private.

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**The reasoning** This tests a fundamental principle of professional ethics: **client confidentiality**. Whether you're an accountant, lawyer, doctor, or financial advisor, information you gather from clients must be kept **confidential** — meaning private, secure, and only shared with proper authorization. Think of it this way: If you tell your doctor about a health issue, you expect them to keep it private, right? The same applies across professions. Clients trust professionals with sensitive information (financial records, personal details, business secrets). Breaking that trust by making information public or selling it would be both unethical and often illegal. **Why the wrong options tempt you** - **A (Public)**: You might think transparency = good, but making private client data public violates their rights - **C (For sale)**: Some might mistakenly think data can be monetized — that's actually illegal in most professions - **D (Optional)**: This suggests confidentiality is a choice, but it's a mandatory professional duty, not optional **Quick takeaway** Client confidentiality isn't just nice to have — it's the foundation of trust in every professional relationship; break it, and you destroy both your reputation and your career.

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CFA Code: act with integrity, competence, diligence, respect; place client interests above self/employer.

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Standard I(A) Knowledge of the Law — members must understand and comply with all applicable laws, rules and regulations.

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When applicable law and the Code conflict, members must follow the more strict.

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Client interests come first. Members must act prudently and with care, placing client interests above all.

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Members may not act on or cause others to act on MNPI — core insider-trading prohibition.

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Material = a reasonable investor would consider it important in making a decision.

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Fair Dealing: disseminate recommendations and take actions fairly across clients — no favouritism in timing/access.

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Members must exercise diligence and have a reasonable basis (research, data) for any analysis or recommendation.

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Standard VI(A) Disclosure of Conflicts — must be made fully and fairly so clients/employers can judge their effect.

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Loyalty to employer — must not deprive the employer of advantage of skills/abilities, divulge confidential info, or misappropriate property.

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Gifts must be disclosed; employer typically requires written approval above a threshold to manage conflicts of interest.

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Standard I(C) prohibits misrepresentation including plagiarism — using others' analyses without proper attribution.

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GIPS provides global, voluntary, ethical standards for calculating and presenting investment performance.

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VII(A) prohibits any conduct that compromises CFA exam integrity — including sharing/disclosing exam content.

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Standard III(C) — recommendations must fit each client's investment policy statement and circumstances.