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Lesson 1 of 34 · 16 min

Standard I: Professionalism

Standard I asks five things of every member and candidate: know and follow the stricter rule, stay independent, never mislead, never act dishonestly, and be competent for the job you actually do.

Video lesson · 6 min. Watch it first, then use the text below to go deeper.

In short

I(A) Knowledge of the Law: follow the stricter of applicable law and the Code and Standards; never knowingly take part in a violation, and dissociate from one you discover.
I(B) Independence and Objectivity: do not offer, ask for or accept anything that could reasonably be expected to compromise your own or someone else's judgment. Token gifts are fine; client gifts must be disclosed to the employer.
I(C) Misrepresentation: no knowingly false statements or misleading omissions, no guarantees on risky investments, and no plagiarism.
I(D) Misconduct: no dishonesty, fraud or deceit, and nothing that reflects badly on your professional reputation, integrity or competence.
I(E) Competence: act with, and keep up, the knowledge, skills and abilities your role requires. A bad outcome alone does not prove incompetence.

I(A) Knowledge of the Law: the stricter rule wins

Members and candidates must understand and obey the laws, rules and regulations that govern their professional work, including the Code and Standards themselves. When the law and the Code differ, follow whichever is more strict: the one that restricts you more or demands more protection for investors. Where there is no law at all, the Code still applies in full.

You are expected to know the rules that govern your own activities, not to be a legal expert. Use your firm's compliance department when unsure, and keep up when rules change (new products and new channels such as social media bring new regulation). Product designers should also understand the laws where a product is created and where it will be sold.

If you know, or should know, that an activity of a colleague, client or employer is illegal or unethical, you must dissociate. First try to stop it: raise it with the person, then with your supervisor or compliance. If that fails, step away: take your name off the report, ask for a different assignment, refuse the client. In the extreme, this can mean resigning. Staying involved and silent can itself count as participation.

The Code does not require you to report violations to regulators (whistleblowing) unless the law does, though it may be prudent. Reporting suspected violations by members to the CFA Institute Professional Conduct Program is encouraged, not required. Relying on a lawyer's opinion that 'it would be hard to prove' does not make an illegal act acceptable.

Which rule applies? (applicable law versus the Code)
Situation	What the member must follow
No securities law where the member works	The Code and Standards
Applicable law is less strict than the Code	The Code and Standards
Applicable law is stricter than the Code	The applicable law
Contract says the client's home-country law governs, and that law is stricter	The client's home-country law

The escalation path under I(A): first try to stop the activity, then step away from it. The Code does not require reporting to regulators unless the law does, but staying silently involved can count as participation.

Recommended procedures for I(A): stay informed about rule changes (compliance memos, continuing education), review the firm's written procedures regularly, keep current reference copies of key rules, seek legal or compliance advice when in doubt, and document a violation when you dissociate. Firms should adopt a code of ethics, share information on applicable laws and set up written procedures for reporting suspected violations.

I(B) Independence and Objectivity: no one buys your opinion

Clients deserve advice that is free of outside influence. Members must use reasonable care to stay independent and objective, and must not offer, solicit or accept any gift, benefit or compensation that could reasonably be expected to compromise their own or another person's independence. The test covers how things look, not only what actually happens.

Pressure comes from many directions: issuers who want favourable coverage, the firm's own investment bankers, buy-side clients holding the stock, sales colleagues with inventory to move, and credit rating agency clients who also buy advisory services. Not every company is a 'buy', and a recommendation must be the analyst's true opinion in plain, unambiguous language.

Gifts from clients are treated more leniently than gifts from third parties, because the client already pays the firm and the gift is like extra compensation. Disclose client gifts to your employer, before accepting if possible and otherwise afterwards. Gifts from parties seeking business (brokers, issuers, managers in a selection process) are the real danger: keep them to token items.

Special cases. Issuer-paid research is allowed only with full disclosure of the relationship and a flat fee agreed in advance that does not depend on the conclusions; payment in shares or warrants, or a bonus for attracting investors, is not acceptable. In manager selection, the hiring side must not ask for gifts or donations (even to a charity or political campaign) and the bidding side must not offer them. For travel, best practice is to pay for commercial transport and hotels yourself; modest arranged travel is acceptable only when commercial options are unavailable.

Usually acceptable versus not acceptable under I(B)
Usually acceptable	Not acceptable
Token gifts and ordinary business meals	Lavish trips or tickets from a broker you route business to
A client's thank-you gift, disclosed to the employer	Undisclosed client gifts
Issuer-paid research for a flat, pre-agreed fee, fully disclosed	Issuer-paid research paid in warrants or with a success bonus
Shared flights to a remote site with no commercial service	Accepting a weekend at a resort added to a site visit
Personal IPO buys pre-approved under firm policy	Taking IPO allocations offered to you as an inducement

Recommended procedures for I(B): written policies that research reflects the analyst's unbiased view; a restricted list (publish only facts) when the firm will not allow negative opinions on a corporate client; paying your own travel; limiting gifts to token items with a value cap (per gift or per year); pre-approval of IPO purchases and strict limits on private placements; reporting lines that keep research away from investment banking; and a senior compliance officer.

I(C) Misrepresentation: no false impressions, no plagiarism

A misrepresentation is any untrue statement, misleading statement or omission of a fact. 'Knowingly' includes what you should have known. It covers your qualifications, your firm's services, performance records and the features of an investment, in any channel: reports, e-mails, websites, social media and conversation.

You must not guarantee a return or the safety of capital on an investment that carries risk. Describing a guarantee that is built into a product, or deposit insurance within its limits, is fine because it is a fact. Other traps: hiding the use of external managers, comparing yourself with an unsuitable benchmark, shopping between pricing providers for the highest valuation of an illiquid asset, presenting model output as fact, and cherry-picking accounts for a composite.

Plagiarism is using other people's work without credit. Forms include copying a report and changing the names, lifting passages with minor rewording, quoting 'leading analysts' without naming them, using someone's forecast but dropping their caveats, using charts without sources, and copying proprietary models or spreadsheets. Cite the original source; a newspaper that merely passed the information along need not be cited if you obtained and checked the original.

Two allowances. You may distribute third-party research as long as you do not present yourself as its author. Research created for a firm belongs to the firm, so the firm may keep using it without crediting an analyst who has left; but you may not reissue a former report under your own name alone. An honest, unintentional error is not a violation, provided you correct it promptly once found.

Recommended procedures: give staff a written list of the firm's services and qualifications, and designate who may speak for the firm.
Each member should keep a summary of their own qualifications and of the services they can perform.
Verify information from third parties before passing it on, and keep webpages current and secure.
To avoid plagiarism: keep copies of sources relied on, and attribute direct quotations and paraphrases (data from recognised financial and statistical reporting services is the exception for quotations).

I(D) Misconduct: honesty in professional life

I(A) is about breaking laws; I(D) is wider. Members must not engage in professional conduct involving dishonesty, fraud or deceit, or commit any act that reflects badly on their professional reputation, integrity or competence. Lying, cheating and stealing at work all qualify, including padding expense or insurance claims.

The focus is on professional life. A personal bankruptcy is not by itself a violation unless it involved fraud. Arrests for peaceful civil disobedience in support of personal beliefs generally do not reflect on professional integrity. Drinking that impairs your judgment during working hours does.

Failing to do the work can also be misconduct: recommending an investment without the due diligence needed to understand its risks, leaning on someone else to do it, damages trust. Recommended firm procedures: a code of ethics every employee signs, a published list of violations and sanctions (up to dismissal), and reference checks on new hires.

I(E) Competence: be good enough for the role you hold

Members must act with, and maintain, the competence needed for their professional responsibilities. Competence means enough knowledge (information applied to the job), skills (capability to perform role-specific tasks) and abilities (capabilities and attitudes that lead to observable results) to do that specific role well.

What counts as competent depends on the role and changes when the role changes. A new supervisor needs management and compliance knowledge; a manager asked to buy an unfamiliar asset class for clients must understand it first. Education alone does not prove competence, and neither does passing a licensing exam if you never learned the material.

A loss does not prove incompetence: a careful analyst can still be wrong, and a well-researched company can still turn out to be a fraud. The standard requires ongoing development but does not mandate any particular program. Ways to keep up: continuing education, certifications, conferences, employer training, self-study, expert groups and learning new skills when duties change.

Quick test for I(E): ask 'did this person have the knowledge and skill the task required, and did they get it before acting?' not 'did the investment work out?'

Worked examples

Example 1 Which law governs?

Tomás Ruiz works in Country X, which has no insider-trading law. His contract with a client in Country Y states that Country Y's law governs, and that law bars advisers from trading a stock for 30 days after meeting its management, which is stricter than the Code. What must Tomás follow, and what would change if Country Y's law were weaker than the Code?

Example 2 Dissociating from a misleading fund document

Mei Lin, a CFA candidate in a Singapore fund firm, finds that a bond fund's offering document says the fund uses no derivatives, while the fund holds leveraged interest rate swaps. Her manager tells her to keep using the document with prospects. What should she do?

Example 3 A site visit with extras

Jonas Berg, a mining analyst in Stockholm, is invited to visit a remote mine. The company offers a seat on its chartered plane (there are no commercial flights), two nights in the only local guesthouse, and afterwards a free weekend at a luxury spa resort. Which parts may he accept?

On the exam

Expect short vignettes asking whether conduct complies or violates, and 'best course of action' items: the stricter-law rule (I(A)), gifts and paid travel (I(B)), guarantees and plagiarism (I(C)). Competence (I(E)) is tested with role changes and unfamiliar products.

The Code never forces you to report a violation to a regulator; it forces you to dissociate. Do not pick 'must report to the authorities' unless the law requires it.
Client gifts are not banned: they must be disclosed to the employer. Third-party gifts that could influence you are the problem.
A typo that overstates assets is not a violation if it was unintentional, but the member must correct it once discovered.
Saying a government bond's coupon payments are backed by the government is a fact; promising a fund will return 10% a year is a guarantee.
A failed investment is not evidence of incompetence or of a missing reasonable basis.

Check yourself

Q1Anya lives in a country with no securities law and advises clients in a country whose law is less strict than the Code and Standards. Anya must follow:
Q2An analyst learns that a colleague is backdating trade tickets. Talking to the colleague fails. Under Standard I(A), the analyst's next step should most likely be to:
Q3After a strong year, a long-standing client sends her portfolio manager two opera tickets. Under Standard I(B), the manager should most appropriately:
Q4Which action is least likely to violate Standard I(C) Misrepresentation?
Q5Which conduct by a portfolio manager is most likely a violation of Standard I(D) Misconduct?
Q6A wealth manager buys a heavily advertised crypto product for clients after reading a few news articles, without understanding how it works. The product falls 70%. He most likely violated Standard I(E) because:

0/6Check yourself

Answer the 6 questions: +10 XP for each one you get right first time.

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