Tài Liệu 2019 CFA level III schweser secret sauce

FOREWORD
TheSecretSauceisasummaryofthehighpointsintheLevelIIICFA®
Curriculum.Itbuildsonthe2019LevelIIISchweserNotes™.Itisbestused
afterreadingthatmaterial,attendingclass,workingonClassDiscussion
Questions,andusingtheQBankforinitialpractice.
Itcannotcovereverythingintheroughly2,500pagesofCFAtext.Itisa
reviewtooltosolidifytheimportantissuesthetextemphasized.Whenyou
findsomethingyouareshakyon,gobacktotheSchweserNotes™and/or
classslidesformoredetail.
Candidateswhostudyandpracticethematerialhaveeveryreasontodowell
ontheexam.Butdonotfallintothetrapofexpectingexamquestionstobe
exactlylikepracticequestions.Learntheunderlyingconcepts,applythe
conceptsinpracticequestions,andexpectsurprisesonexamday.CFA
Institutealwaysfindsawaytothrowinafewtwists.
AtLevelI,youlargelymemorizedfactsandthenregurgitatedthemonthe
exam.AtLevelII,thetopicalcoveragewasmoredifficult,buteachtopicwas
testedinastand-aloneitemsetinmuchthewayitwaspresentedinthe
curriculum.AtLevelIII,youcanbeexpectedtointegratedifferentconcepts
fromdifferentpartsofthecurriculuminordertounderstandasingle,multipartquestion.
Theothermajorchallengeistheconstructedresponsemorningsectionofthe
exam.Youmustknowthematerial,thinklogically,andthenresponddirectly
towhatisaskedinthequestion.CFAInstitutedoesnotawardpointsfora
generaldisplayofknowledge.Ourcoachingusingtheoldexamquestions,
WeeklyClassWorkbooks,MockExams,andPracticeExamsillustratehowto
answerconstructedresponsequestions.Itisaskilllearnedthrough
preparationandthenpractice.
LevelIIIprovidesitsownuniquechallenges.Prepareproperly,practice,and
youcanmakeyourowngoodluck.
Iwishyouallthebestonexamday.

KurtSchuldes
KurtSchuldes,MBA,CFA,CAIA
SeniorContentSpecialist


KaplanSchweser


ETHICS
StudySessions1&2

TopicWeightonExam

10-15%

SchweserNotes™Reference
Book1,Pages1–65

.

STUDYSESSION1—ETHICALAND
PROFESSIONALSTANDARDS
CFAINSTITUTECODEOFETHICSAND
STANDARDSOFPROFESSIONALCONDUCT
Cross-ReferencetoCFAInstituteAssignedReadings#1&2
EthicsiscoveredinStudySessions1and2.Ethicswillcomprise10–15%of
theexamandcouldbetestedintwoselectedresponseitemsetslikeLevelII
oracombinationofconstructedresponseanditemsetquestions.Readthe
case,thinkoftheappropriateprinciplesthataremostpertinent,andthen

selectthebestanswerchoice.Insomecases,aneducatedguessisthebestyou
cando.Also,bepreparedforquestionsrelatedtocomplianceissues,theAsset
ManagerCodeofConduct,andthedisciplinaryprocess.Thebestwayto
prepareforethicsistoreadtheCFAmaterialandthenworkallofour
questionsplustheCFAend-of-readingquestions.

CodeofEthics
MembersofCFAInstitute,includingCharteredFinancialAnalyst®(CFA®)
charterholders,andCandidatesfortheCFAdesignation(“Membersand
Candidates”)must:1
Actwithintegrity,competence,diligence,respect,andinanethical
mannerwiththepublic,clients,prospectiveclients,employers,
employees,colleaguesintheinvestmentprofession,andother
participantsintheglobalcapitalmarkets.
Placetheintegrityoftheinvestmentprofessionandtheinterestsof
clientsabovetheirownpersonalinterests.


Usereasonablecareandexerciseindependentprofessionaljudgment
whenconductinginvestmentanalysis,makinginvestment
recommendations,takinginvestmentactions,andengaginginother
professionalactivities.
Practiceandencourageotherstopracticeinaprofessionalandethical
mannerthatwillreflectcreditonthemselvesandtheprofession.
Promotetheintegrityandviabilityoftheglobalcapitalmarketsforthe
ultimatebenefitofsociety.
Maintainandimprovetheirprofessionalcompetenceandstriveto
maintainandimprovethecompetenceofotherinvestmentprofessionals.

GUIDANCEFORSTANDARDSI–VII

I.Professionalism
I(A).KnowledgeoftheLaw.Membersmustunderstandandcomplywith
laws,rules,regulations,andCodeandStandardsofanyauthoritygoverning
theiractivities.Intheeventofaconflict,followthemorestrictlaw,rule,or
regulation.

Guidance
Membersmustknowthelawsandregulationsrelatingtotheirprofessional
activitiesinallcountriesinwhichtheyconductbusiness.DonotviolateCode
orStandardseveniftheactivityisotherwiselegal.Alwaysadheretothemost
strictrulesandrequirements(laworCFAInstituteStandards)thatapply.
Dissociatefromanyongoingclientoremployeeactivitythatisillegalor
unethical,evenifitinvolvesleavinganemployer(anextremecase).Whilea
Membermayconfronttheinvolvedindividualfirst,hemustapproachhis
supervisororcompliancedepartment.Inactionwithcontinuedassociation
maybeconstruedasknowingparticipation.

RecommendationsforMembers
Establish,orencourageemployertoestablish,procedurestokeep
employeesinformedofchangesinrelevantlaws,rules,andregulations.
Review,orencourageemployertoreview,thefirm’swrittencompliance
proceduresonaregularbasis.
Maintain,orencourageemployertomaintain,copiesofcurrentlaws,
rules,andregulations.


Whenindoubtaboutlegality,consultsupervisor,compliancepersonnel,
oralawyer.
Whendissociatingfromviolations,keeprecordsdocumentingthe
violations,encourageemployertobringanendtotheviolations.

ThereisnorequirementintheStandardstoreportwrongdoers,butlocal
lawmayrequireit;membersare“stronglyencouraged”toreport
violationstoCFAInstituteProfessionalConductProgram.

RecommendationsforFirms
Haveacodeofethics.
Provideemployeeswithinformationonlaws,rules,andregulations
governingprofessionalactivities.
Haveproceduresforreportingsuspectedviolations.
I(B).IndependenceandObjectivity.Usereasonablecaretoexercise
independenceandobjectivityinprofessionalactivities.Donotoffer,solicit,
oracceptanygift,benefit,compensation,orconsiderationthatwould
compromiseindependenceandobjectivity.

Guidance
Donotlettheinvestmentprocessbeinfluencedbyanyexternalsources.
Modestgiftsarepermitted.AllocationofsharesinoversubscribedIPOsto
personalaccountsisNOTpermitted.Distinguishbetweengiftsfromclients
andgiftsfromentitiesseekinginfluencetothedetrimentofanyclient.Gifts
mustbedisclosedtotheMember’semployerinanycase.

Guidance—Investment-BankingRelationships
Donotbepressuredbysell-sidefirmstoissuefavorableresearchoncurrent
orprospectiveinvestment-bankingclients.Itisappropriatetohaveanalysts
workwithinvestmentbankersin“roadshows”onlywhentheconflictsare
adequatelyandeffectivelymanagedanddisclosed.Besurethereareeffective
“firewalls”betweenresearch/investmentmanagementandinvestment
bankingactivities.

Guidance—PublicCompanies

Analystsshouldnotbepressuredtoissuefavorableresearchbythecompanies
theyfollow.Donotconfineresearchtodiscussionswithcompany
management,butratheruseavarietyofsources,includingsuppliers,
customers,andcompetitors.


Guidance—Buy-SideClients
Buy-sideclientsmaytrytopressuresell-sideanalysts.Portfoliomanagers
mayhavelargepositionsinaparticularsecurity,andaratingdowngrademay
haveaneffectontheportfolioperformance.Asaportfoliomanager,thereisa
responsibilitytorespectandfosterintellectualhonestyofsell-sideresearch.

Guidance—Issuer-PaidResearch
Analysts’compensationforpreparingsuchresearchshouldbelimited,andthe
preferenceisforaflatfee,withoutregardtoconclusionsorthereport’s
recommendations.

RecommendationsforMembers
Membersortheirfirmsshouldpayfortheirowntraveltocompanyeventsor
tourswhenpracticableandlimituseofcorporateaircrafttotripsforwhich
commercialtravelisnotanalternative.

RecommendationsforFirms
Establishpoliciesrequiringeveryresearchreporttoreflecttheunbiased
opinionoftheanalystandaligncompensationplanstosupportthis
principal.
Establishandreviewwrittenpoliciesandprocedurestoassureresearch
isindependentandobjective.
Establishrestrictedlistsofsecuritiesforwhichthefirmisnotwillingto
issueadverseopinions.Factualinformationmaystillbeprovided.

Limitgiftsfromnon-clientstotokenamounts.
Limitandrequirepriorapprovalofemployeeparticipationinequity
IPOs.
Establishproceduresforsupervisoryreviewofemployeeactions.
Appointaseniorofficertooverseefirmcomplianceandethics.
I(C).Misrepresentation.Donotmisrepresentfactsregardinginvestment
analysis,recommendations,actions,orotherprofessionalactivities.

Guidance
Donotmakemisrepresentationsorgivefalseimpressions.Misrepresentations
includeguaranteeinginvestmentperformanceandplagiarism.Plagiarism
encompassesusingsomeoneelse’sworkwithoutgivingcredit.


RecommendationsforMembers
Understandthescopeandlimitsofthefirm’scapabilitiestoavoid
inadvertentmisrepresentations.
Summarizeyourownqualificationsandexperience.
Makereasonableeffortstoverifyinformationfromthirdpartiesthatis
providedtoclients.
Regularlymaintainwebpagesforaccuracy.
Avoidplagiarismbykeepingcopiesofallresearchreportsand
supportingdocumentsandattributingdirectquotes,paraphrases,and
summariestotheirsource.
I(D).Misconduct.Donotengageinanyprofessionalconductthatinvolves
dishonesty,fraud,ordeceit.Donotdoanythingthatreflectspoorlyonyour
integrity,goodreputation,trustworthiness,orprofessionalcompetence.

Guidance
CFAInstitutediscouragesunethicalbehaviorinallaspectsofMembers’and

Candidates’lives.DonotabuseCFAInstitute’sProfessionalConduct
ProgrambyseekingenforcementofthisStandardtosettlepersonal,political,
orotherdisputesthatarenotrelatedtoprofessionalethics.

RecommendationsforFirms
Developandadoptacodeofethicsandmakeclearthatunethical
behaviorwillnotbetolerated.
Giveemployeesalistofpotentialviolationsandsanctions,including
dismissal.
Checkreferencesofpotentialemployees.

II.IntegrityofCapitalMarkets
II(A).MaterialNonpublicInformation.MembersandCandidatesin
possessionofmaterialnonpublicinformationmustnotactorinducesomeone
elsetoactontheinformation.

Guidance
Informationis“material”ifitsdisclosurewouldimpactthepriceofasecurity
orifreasonableinvestorswouldwanttheinformationbeforemakingan
investmentdecision.Informationis“nonpublic”untilithasbeenmade
availabletothemarketplace.ThisStandarddoesnotapplytousingmaterial


nonpublicinformationforitsintendedpurpose,suchasaninvestmentbanker
usinginformationfromafirm(theclient)inordertoadviseoractforthat
clientinwaysthatareotherwiseethical.

Guidance—MosaicTheory
Thereisnoviolationwhenaperceptiveanalystreachesaninvestment
conclusionaboutacorporateactionoreventthroughananalysisofpublic

informationtogetherwithitemsofnon-materialnonpublicinformation.

RecommendationsforMembers
Makereasonableeffortstoachievepublicdisseminationbythefirmof
informationtheypossess.
Encouragetheirfirmstoadoptprocedurestopreventthemisuseof
materialnonpublicinformation.

RecommendationsforFirms
Issuepressreleasespriortoanalystmeetingstoassurepublic
disseminationofanynewinformation.
Adoptproceduresforequitabledistributionofinformationtothemarket
place(e.g.,newresearchopinionsandreportstoclients).
Establishfirewallswithintheorganizationforwhomayandmaynot
haveaccesstomaterialnonpublicinformation.Generally,thisincludes
havingthelegalorcompliancedepartmentclearinterdepartmental
communications,reviewingemployeetrades,documentingproceduresto
limitinformationflow,andcarefullyreviewingorrestrictingproprietary
tradingwheneverthefirmpossessesmaterialnonpublicinformationon
thesecuritiesinvolved.
Ensurethatproceduresforproprietarytradingareappropriatetothe
strategiesused.Ablanketprohibitionisnotrequired.
Developprocedurestoenforcefirewallswithcomplexityconsistentwith
thecomplexityofthefirm.
Physicallyseparatedepartments.
Haveacompliance(orother)officerreviewandauthorizeinformation
flowsbeforesharing.
Maintainrecordsofinformationshared.
Limitpersonaltrading,requirethatitbereported,andestablisha
restrictedlistofsecuritiesinwhichpersonaltradingisnotallowed.

Regularlycommunicatewithandtrainemployeestofollowprocedures.


II(B).MarketManipulation.Donotengageinanypracticesintendedto
misleadmarketparticipantsthroughdistortedpricesorartificiallyinflated
tradingvolume.

Guidance
ThisStandardappliestotransactionsthatdeceivethemarketbydistortingthe
price-settingmechanismoffinancialinstrumentsorbysecuringacontrolling
positiontomanipulatethepriceofarelatedderivativeand/ortheassetitself.
Spreadingfalserumorsisalsoprohibited.Actionsthataffectpriceand
volumebutarenotdonewithmisleadingintenttodeceivearenotaviolation.

III.DutiestoClientsandProspectiveClients
III(A).Loyalty,Prudence,andCare.Membersmustalwaysactforthe
benefitofclientsandplaceclients’interestsbeforetheiremployer’sortheir
owninterests.Membersmustbeloyaltoclients,usereasonablecare,and
exerciseprudentjudgment.

Guidance
Clientinterestsalwayscomefirst.
Exerciseprudence,care,skill,anddiligence.
Managepoolsofclientassetsinaccordancewiththetermsofthe
governingdocuments.Theclientcanbeaspecificindividual,group,or
eventhegeneralinvestingpublic.
Makeinvestmentdecisionsinthecontextofthetotalportfolio.
Adviseclientsofanylimitationsontheadvice,suchasonly
recommendingproductsoftheadvisor.
Voteproxiesinaninformedandresponsiblemanner.Duetocostbenefit

considerations,itmaynotbenecessarytovoteallproxies.
Clientbrokerage,or“softdollars”or“softcommissions,”mustbeused
tobenefittheclient.

RecommendationsforMembers
Submittoclients,atleastquarterly,itemizedstatementsshowingallsecurities
incustodyandalldebits,credits,andtransactions.Disclosewhereclient
assetsareheldandiftheyaremoved.Keepclientassetsseparatefromothers’
assets.


Ifindoubtastotheappropriateaction,whatwouldyoudoifyouwerethe
client?Ifstillindoubt,discloseandseekwrittenclientapproval.
Encouragefirmstoaddressthesetopicswhendraftingpoliciesand
proceduresregardingfiduciaryduty:
Followapplicablerulesandlaws.
Establishinvestmentobjectivesofclient.
Considersuitabilityofaportfoliorelativetotheclient’sneedsand
circumstances,theinvestment’sbasiccharacteristics,orthebasic
characteristicsofthetotalportfolio.
Diversifyunlessaccountguidelinesdictateotherwise.
Dealfairlywithallclientsinregardtoinvestmentactions.
Discloseconflictsofinterest.
Disclosemanagercompensationarrangements.
Regularlyreviewactionsforconsistencywithdocuments.
Voteproxiesinthebestinterestofclientsandultimatebeneficiaries.
Maintainconfidentiality.
Seekbestexecution.
Putclientinterestsfirst.
III(B).FairDealing.Membersmustdealfairlyandobjectivelywithall

clientsandprospects.

Guidance
Fairlydoesnotmeanequally.Inthenormalcourseofbusiness,therewillbe
differencesinthetimeemails,faxes,etcetera,arereceivedbydifferent
clients.Differentservicelevelsareokay,buttheymustnotnegativelyaffect
ordisadvantageanyclients.Disclosethedifferentservicelevelstoallclients
andprospects,andmakepremiumlevelsofserviceavailabletoallwhowish
topayforthem.
Giveallclientsafairopportunitytoactuponeveryrecommendation.Clients
whoareunawareofachangeinarecommendationshouldbeadvisedbefore
theorderisaccepted.
Treatallclientsfairlyinlightoftheirinvestmentobjectivesand
circumstances.MembersandCandidatesshouldnottakeadvantageoftheir
positionintheindustrytodisadvantageclients.


RecommendationsforMembers
Encouragefirmstoestablishcomplianceproceduresrequiringproper
disseminationofinvestmentrecommendationsandfairtreatmentofall
customersandclients.
Maintainalistofclientsandholdings—usetoensurethatallholdersare
treatedfairly.

RecommendationsforFirms
Limitthenumberofpeoplewhoareawarethatachangein
recommendationwillbemade.
Shortenthetimeframebetweendecisionanddissemination.
Publishpersonnelguidelinesforpre-dissemination—haveinplace
guidelinesprohibitingpersonnelwhohavepriorknowledgeofa

recommendationfromdiscussingitortakingactiononthepending
recommendation.
Disseminateneworchangedrecommendationssimultaneouslytoall
clientswhohaveexpressedaninterestorforwhomaninvestmentis
suitable.
Establishsystematicaccountreview—ensurethatnoclientisgiven
preferredtreatmentandthatinvestmentactionsareconsistentwiththe
account’sobjectives.
Discloseavailablelevelsofserviceandtheassociatedfees.
Disclosetradeallocationprocedures.
Developwrittentradeallocationproceduresto:
Documentandtimestampallorders.
Bundleordersandthenexecuteonafirstcome,firstfillbasis.
Allocatepartiallyfilledorders.
Providethesamenet(aftercosts)executionpricetoallclientsina
blocktrade.
III(C).Suitability
1. Wheninanadvisoryrelationshipwithclientorprospect:
a. Makereasonableinquiryintoclients’investmentexperience,risk
andreturnobjectives,andconstraintspriortomakingany
recommendationsortakinginvestmentaction.Reassessinformation
andupdateregularly.
b. Besurerecommendationsandinvestmentsaresuitabletoaclient’s
financialsituationandconsistentwithclientobjectives.


c. Makesureinvestmentsaresuitableinthecontextofaclient’stotal
portfolio.
2. Whenmanagingaportfolio,investmentrecommendationsandactions
mustbeconsistentwithstatedportfolioobjectivesandconstraints.

Guidance
Inadvisoryrelationships,gatherandmaintainrelevantclientinformation.If
responsibleformanagingafundtoanindexorotherstatedmandate,besure
investmentsareconsistentwiththestatedmandate.
Ifamanagerreceivesanunsolicitedtraderequestfromaclientand
determinesthetradeisnotsuitable,discussthesituationwiththeclient.Ifthe
requestdoesnothaveamaterialeffectontheclient,thetrademaybe
executedafterthediscussion.Ifthetradehasamaterialeffect,workwiththe
clienttochangetheIPSormakethetradeinaclient-directedaccount.

RecommendationsforMembers
EstablishawrittenIPS,consideringtypeofclientandaccount
beneficiaries,theobjectives,constraints,andtheportionoftheclient’s
assetsmanaged.
ReviewtheIPSannuallyandupdateformaterialchangesinclientand
marketcircumstances.
Developpoliciesandprocedurestoassesssuitabilityofportfolio
changes.Considertheimpactondiversification,risk,andmeetingthe
client’sinvestmentstrategy.
III(D).PerformancePresentation.Presentationsofinvestmentperformance
informationmustbefair,accurate,andcomplete.

Guidance
Avoidmisstatingperformanceormisleadingclients/prospectsabout
investmentperformance.Donotmisrepresentpastperformanceorreasonably
expectedperformance.Donotstateorimplytheabilitytoachievearateof
returnsimilartothatachievedinthepast.Abbreviatedpresentationsmust
includeanofferthatfulldetailsareavailable.

RecommendationsforMembers
EncouragefirmstoadheretoGlobalInvestmentPerformanceStandards.
Considerthesophisticationoftheaudiencetowhomaperformance
presentationisaddressed.


Presenttheperformanceofaweightedcompositeofsimilarportfolios
ratherthantheperformanceofasingleaccount.
Includeterminatedaccountsaspartofhistoricalperformanceandclearly
statewhentheywereterminated.
Includeallappropriatedisclosurestofullyexplainresults(e.g.,model
resultsincluded,grossornetoffees,etc.).
Maintaindataandrecordsusedtocalculatetheperformancebeing
presented.
III(E).PreservationofConfidentiality.Allinformationaboutcurrentand
formerclientsandprospectsmustbekeptconfidentialunlessitpertainsto
illegalactivitiesanddisclosureisrequiredbylaw,ortheclientorprospect
givespermissionfortheinformationtobedisclosed.

Guidance
Ifillegalactivitiesbyaclientaresuspected,Membersmayhaveanobligation
toreporttheactivitiestoauthorities.TherequirementsofthisStandardarenot
intendedtopreventMembersandCandidatesfromcooperatingwithaCFA
InstituteProfessionalConductProgram(PCP)investigation.

RecommendationsforMembers
Membersshouldavoiddisclosinginformationreceivedfromaclient
excepttoauthorizedcoworkerswhoarealsoworkingfortheclient.
Considerwhetherthedisclosureisnecessaryandwillbenefittheclient.
Membersshouldfollowfirmproceduresforstorageofelectronicdata

andrecommendadoptionofsuchproceduresiftheyarenotinplace.
Assureclientinformationisnotaccidentallydisclosed.

IV.DutiestoEmployers
IV(A).Loyalty.MembersandCandidatesmustplacetheiremployer’s
interestbeforetheirownandmustnotdeprivetheiremployeroftheirskills
andabilities,divulgeconfidentialinformation,orotherwiseharmtheir
employer.

Guidance
Memberswhoareemployeesmustnotengageinactivitiesthatwouldinjure
theirfirm,depriveitofprofit,ordepriveitoftheadvantageofemployees’
skillsandabilities.Alwaysplaceclientinterestsaboveemployerinterests.
Memberswhoareindependentcontractorsdonotowethispresumptionof


exclusivitytothosewhohirethemforservices.Thosemembersmustadhere
tothetermsoftheircontract(s).
Membersmustalsocomplywiththeiremployer’spoliciesregardingsocial
media.

Guidance—IndependentPractice
Independentpracticeforcompensationisallowedifanotificationisprovided
totheemployerfullydescribingallaspectsoftheservices,including
compensation,duration,andthenatureoftheactivitiesandiftheemployer
consentstoalltermsoftheproposedindependentpracticebeforeitbegins.

Guidance—LeavinganEmployer
Membersmustcontinuetoactintheiremployer’sbestinterestsuntil
resignationiseffective.Activitiesthatmayconstituteaviolationinclude:

Misappropriationoftradesecrets.
Misuseofconfidentialinformation.
Solicitingemployer’sclientspriortoleaving.
Self-dealing.
Misappropriationofclientlists.
Onceanemployeehasleftafirm,simpleknowledgeofnamesandexistence
offormerclientsisgenerallynotconfidential.Also,thereisnoprohibitionon
theuseofexperienceorknowledgegainedwhilewithaformeremployer.

Guidance—Whistleblowing
Theremaybeisolatedcaseswhereadutytoone’semployermaybeviolated
inordertoprotectclientsortheintegrityofthemarketandnotforpersonal
gain.

RecommendationsforMembers
Keeppersonalandprofessionalsocialmediaaccountsseparate.
Business-relatedaccountsapprovedbythefirmconstituteemployer
assets.
Understandandfollowtheemployer’spoliciesregardingcompetitive
activities,terminationofemployment,whistleblowing,andwhetheryou
areconsideredafull-orpart-timeemployee,oracontractor.

RecommendationsforFirms


Employersshouldnothaveincentiveandcompensationsystemsthat
encourageunethicalbehavior.
Establishcodesofconductandrelatedprocedures.
IV(B).AdditionalCompensationArrangements.Acceptnogifts,benefits,
compensation,orconsiderationthatmaycreateaconflictofinterestwiththe

employer’sinterestunlesswrittenconsentisreceivedfromallparties.An
offerfromaclientthatiscontingentonfutureperformanceisaformof
compensationandrequiresthedisclosureandapprovalconditionsofthis
Standard,IV(B).Incontrast,anofferfromaclientthatisbasedonpast
performanceisagift(notcompensation)andmustmeettheprovisionsof
StandardI(B),maintainingIndependenceandObjectivity.

Guidance
Compensationincludesdirectandindirectcompensationfromaclientand
otherbenefitsreceivedfromthirdparties.WrittenconsentfromaMember’s
employerincludese-mailcommunication.

RecommendationsforMembers
Makeanimmediatewrittenreporttotheemployerdetailinganyproposed
compensationandservices,ifadditionaltothatprovidedbytheemployer.It
shoulddisclosethenature,approximateamount,anddurationof
compensation.
Membersandcandidateswhoarehiredtoworkparttimeshoulddiscussany
arrangementsthatmaycompetewiththeiremployer’sinterestatthetimethey
arehiredandabidebyanylimitationstheiremployeridentifies.
IV(C).ResponsibilitiesofSupervisors.MembersandCandidatesmustmake
reasonableeffortstoensurethatanyonesubjecttotheirsupervisionor
authoritycomplieswithapplicablelaws,rules,regulations,andtheCodeand
Standards.

Guidance
Membersmustmakereasonableeffortstopreventemployeesfromviolating
laws,rules,regulations,ortheCodeandStandards,aswellasmake
reasonableeffortstodetectviolations.

Guidance—ComplianceProcedures


Anadequatecompliancesystemmustmeetindustrystandards,regulatory
requirements,andtherequirementsoftheCodeandStandards.Memberswith
supervisoryresponsibilitieshaveanobligationtobringaninadequate
compliancesystemtotheattentionoffirm’smanagementandrecommend
correctiveaction.
Whenaviolationisdiscovered,thesupervisorshould:
Respondpromptlyandinvestigatethoroughly.
Supervisetheaccusedcloselyuntiltheissueisresolved.
Considerchangestominimizefutureviolations.
Conductregularethicsandcompliancetraining.
Designincentivecompensationplanstosupportethicalbehavior(e.g.,don’t
incentinappropriaterisktakingorotheractionsdetrimentaltotheclients).

RecommendationsforMembers
Amembershouldrecommendthathisemployeradoptacodeofethics.
Membersshouldencourageemployerstoprovidetheircodesofethicsto
clients.
Oncethecomplianceprogramisinstituted,thesupervisorshould:
Distributeittotheproperpersonnel.
Updateitasneeded.
Continuallyeducatestaffregardingprocedures.
Issueremindersasnecessary.
Requireprofessionalconductevaluations.
Reviewemployeeactionstomonitorcomplianceandidentifyviolations.
Respondpromptlytoviolations,investigatethoroughly,increase
supervisionwhileinvestigatingthesuspectedemployee,andconsider
changestopreventfutureviolations.

RecommendationsforFirms
Donotconfusethecodewithcompliance.Thecodeisgeneralprinciplesin
plainlanguage.Complianceisdetailedprocedurestomeetthecode.
Complianceproceduresshould:
Beclearlywritten.
Beeasytounderstand.


Designateacomplianceofficerwithauthorityclearlydefined.
Haveasystemofchecksandbalances.
Establishahierarchyofsupervisors.
Outlinethescopeofprocedures.
Outlinewhatconductispermitted.
Containproceduresforreportingviolationsandsanctions.
Ethicseducationwillnotdeterfraud,butitwillestablishanethicalculture
andalertemployeestopotentialethicalandlegalpitfalls.Reinforcethe
culturewithincentivecompensationplansthatalignemployeeincentiveswith
clientbestinterests.

V.InvestmentAnalysis,Recommendations,
andAction
V(A).DiligenceandReasonableBasis
1. Whenanalyzinginvestments,makingrecommendations,andtaking
investmentactions,usediligence,independence,andthoroughness.
2. Analysis,recommendations,andactionsshouldhaveareasonableand
adequatebasis,supportedbyresearchandinvestigation.

Guidance
TheapplicationofthisStandarddependsontheinvestmentphilosophy

adheredto,Members’andCandidates’rolesintheinvestmentdecisionmakingprocess,andtheresourcesandsupportprovidedbyemployers.These
factorsdictatethedegreeofdiligence,thoroughnessofresearch,andthe
properlevelofinvestigationrequired.

Guidance—UsingSecondaryorThird-PartyResearch
Seethattheresearchissound.Examplesofcriteriatousetoevaluate:
Reviewassumptionsused.
Howrigorouswastheanalysis?
Howtimelyistheresearch?
Evaluateobjectivityandindependenceoftherecommendations.

Guidance—GroupResearchandDecisionMaking


EvenifaMemberdoesnotagreewiththeindependentandobjectiveviewof
thegroup,hedoesnotnecessarilyhavetodeclinetobeidentifiedwiththe
report,aslongasthereisareasonableandadequatebasis.

RecommendationsforMembers
Membersshouldencouragetheirfirmstoconsiderthesepoliciesand
proceduressupportingthisStandard:
Haveapolicyrequiringthatresearchreportsandrecommendationshave
abasisthatcanbesubstantiatedasreasonableandadequate.
Havedetailed,writtenguidanceforproperresearch,supervision,anddue
diligence.
Havemeasurablecriteriaforjudgingthequalityofresearch,andbase
analystcompensationonsuchcriteria.
Havewrittenproceduresthatprovideaminimumacceptablelevelof
scenariotestingforcomputer-basedmodelsandincludestandardsforthe
rangeofscenarios,modelaccuracyovertime,andameasureofthe

sensitivityofcashflowstomodelassumptionsandinputs.
Haveapolicyforevaluatingoutsideprovidersofinformationthat
addressesthereasonablenessandaccuracyoftheinformationprovided
andestablisheshowoftentheevaluationsshouldberepeated.
Adoptasetofstandardsthatprovidescriteriaforevaluatingexternal
advisersandstateshowoftenareviewofexternaladviserswillbe
performed.
V(B).CommunicationWithClientsandProspectiveClients
1. Disclosetoclientsandprospectiveclientsthebasicformatandgeneral
principlesoftheinvestmentprocessestheyusetoanalyzeinvestments,
selectsecurities,andconstructportfoliosandmustpromptlydiscloseany
changesthatmightmateriallyaffectthoseprocesses.
2. Disclosetoclientsandprospectiveclientssignificantlimitationsand
risksassociatedwiththeinvestmentprocess.
3. Usereasonablejudgmentinidentifyingwhichfactorsareimportantto
theirinvestmentanalyses,recommendations,oractionsandinclude
thosefactorsincommunicationswithclientsandprospectiveclients.
4. Distinguishbetweenfactandopinioninthepresentationofinvestment
analysisandrecommendations.

Guidance


Propercommunicationwithclientsiscriticaltoprovidequalityfinancial
services.Distinguishbetweenopinionsandfactsandalwaysincludethebasic
characteristicsofthesecuritybeinganalyzedinaresearchreport.
Membersshouldcommunicateriskfactorsspecifictonon-traditional
investments,includingpotentialgainsandlossesonallinvestmentsinterms
oftotalreturns.Membersarerequiredtocommunicatesignificantchangesin
theriskcharacteristicsofaninvestmentorstrategyandtoupdateclients

regularlyaboutchangesintheinvestmentprocess.
Membersshouldexplainthelimitationsinherenttoaninvestmentandthe
limitationsoftheprojectionsfromquantitativemodelsandanalysis.
Membersmustillustratetoclientsandprospectstheinvestmentdecisionmakingprocessutilized.Thesuitabilityofeachinvestmentisimportantinthe
contextoftheentireportfolio.

RecommendationsforMembers
Selectionofrelevantfactorsinareportcanbeajudgmentcallsomembers
shouldmaintainrecordsindicatingthenatureoftheresearch,andbeableto
supplyadditionalinformationifitisrequestedbytheclientorotherusersof
thereport.
Encouragethefirmtoestablisharigorousmethodofreviewingresearchwork
andresults.
V(C).RecordRetention.Maintainallrecordssupportinganalysis,
recommendations,actions,andallotherinvestment-relatedcommunications
withclientsandprospects.

Guidance
Membersmustmaintainresearchrecordsthatsupportthereasonsforthe
analyst’sconclusionsandanyinvestmentactionstaken.Suchrecordsarethe
propertyofthefirm.Ifnootherregulatorystandardsareinplace,CFA
Instituterecommendsatleasta7-yearholdingperiod.

RecommendationsforMembers
Maintainnotesanddocumentstosupportallinvestmentcommunications.

RecommendationsforFirms
Ifnoregulatorystandardsorfirmpoliciesareinplace,theStandard
recommendsaseven-yearminimumholdingperiod.

VI.ConflictsofInterest
VI(A).DisclosureofConflicts.MembersandCandidatesmustmakefulland
fairdisclosureofallmattersthatmayimpairtheirindependenceorobjectivity
orinterferewiththeirdutiestoemployer,clients,andprospects.Disclosures
mustbeprominent,inplainlanguage,andeffectivelycommunicatethe
information.

Guidance—DisclosuretoClients
Therequirementallowsclientsandprospectstojudgemotivesandpotential
biasesforthemselves.Disclosureofbroker/dealermarket-makingactivities
wouldbeincludedhere.Boardserviceisanotherareaofpotentialconflict.
Themostcommonconflictthatrequiresdisclosureisactualownershipof
stockincompaniestheMemberrecommendsorclientshold.Incentive
compensationplansthatmayputmemberandclientinterestsinconflictmust
bedisclosedtoclientsbytheiradvisors.

Guidance—DisclosureofConflictstoEmployers
Membersmustpromptlyreportpotentialconflictsandgivetheemployer
enoughinformationtojudgetheimpactoftheconflict.Takereasonablesteps
toavoidconflicts.

RecommendationsforMembers
Anyspecialcompensationarrangements,bonusprograms,commissions,
performance-basedfees,optionsonthefirm’sstock,andotherincentives
shouldbedisclosedtoclients.Ifthefirmrefusestoallowthisdisclosure,
documenttherefusalandconsiderdisassociatingfromthefirm.
VI(B).PriorityofTransactions.Investmenttransactionsforclientsand
employersmusthavepriorityoverthoseinwhichaMemberorCandidateisa
beneficialowner.

Guidance
Clienttransactionstakepriorityoverpersonaltransactionsandover
transactionsmadeonbehalfoftheMember’sfirm.Personaltransactions
includesituationswheretheMemberisa“beneficialowner.”Personal
transactionsmaybeundertakenonlyafterclientsandtheMember’semployer
havehadanadequateopportunitytoactonarecommendation.Notethat
family-memberaccountsthatareclientaccountsshouldbetreatedjustlike
anyclientaccount;theyshouldnotbedisadvantaged.


RecommendationsforMembers
Membersshouldencouragetheirfirmstoadopttheprocedureslistedinthe
followingrecommendationsforfirmsanddisclosethesetoclients.

RecommendationsforFirms
Allfirmsshouldhavebasicproceduresinplacethataddressconflictscreated
bypersonalinvesting.Thefollowingareasshouldbeincluded:
EstablishlimitationsonemployeeparticipationinequityIPOsand
systematicallyreviewsuchparticipation.
Establishrestrictionsonparticipationinprivateplacements.Strictlimits
shouldbeplacedonemployeeacquisitionofthesesecuritiesandproper
supervisoryproceduresshouldbeinplace.Participationinthese
investmentsraisesconflictofinterestissuessimilartothoseofIPOs.
Establishblackout/restrictedperiods.Employeesinvolvedininvestment
decisionmakingshouldhaveblackoutperiodspriortotradingforclients
—nofrontrunning(i.e.,purchaseorsaleofsecuritiesinadvanceof
anticipatedclientoremployerpurchasesandsales).Thesizeofthefirm
andthetypeofsecurityshouldhelpdictatehowseveretheblackout
requirementshouldbe.

Establishreportingprocedures,includingduplicatetradeconfirmations,
disclosureofpersonalholdingsandbeneficialownershippositions,and
preclearanceprocedures.
Disclose,uponrequest,thefirm’spoliciesregardingpersonaltrading.
VI(C).ReferralFees.MembersandCandidatesmustdisclosetotheir
employers,clients,andprospectsanycompensationconsiderationorbenefit
receivedby,orpaidto,othersforrecommendationsofproductsandservices.

Guidance
Membersmustinformemployers,clients,andprospectsofanybenefit
receivedforreferralsofcustomersandclients,allowingthemtoevaluatethe
fullcostoftheserviceaswellasanypotentialpartiality.

RecommendationsforMembers
Membersshouldencouragetheirfirmstoadoptclearproceduresregarding
compensationforreferrals.

RecommendationsforFirms


Haveaninvestmentprofessionaladvisetheclientsatleastquarterlyonthe
natureandamountofanysuchcompensation.

VII.ResponsibilitiesasaCFAInstituteMember
orCFACandidate
VII(A).ConductasMembersandCandidatesintheCFAProgram.
MembersandCandidatesmustnotengageinanyconductthatcompromises
thereputationorintegrityofCFAInstituteortheCFAdesignationorthe
integrity,validity,orsecurityoftheCFAInstitutePrograms.
ThisStandardappliestoconductthatincludes:

Revealinganythingabouteitherbroadorspecifictopicstested,content
ofexamquestions,orformulasrequiredornotrequiredontheexam.
CheatingontheCFAExamoranyexam.
NotfollowingrulesandpoliciesoftheCFAprogram.
GivingconfidentialinformationontheCFAprogramtoanyone.
Improperlyusingthedesignationforpersonalgain.
MisrepresentinginformationontheProfessionalConductStatement
(PCS)ortheCFAInstituteProfessionalDevelopmentProgram.
MembersandCandidatesarenotprecludedfromexpressingtheiropinions
regardingtheexamprogramorCFAInstitute.
VII(B).ReferencetoCFAInstitute,theCFAdesignation,andtheCFA
Program.MembersandCandidatesmustnotmisrepresentorexaggeratethe
meaningorimplicationsofmembershipinCFAInstitute,holdingtheCFA
designation,orcandidacyintheprogram.

Guidance
MembersmustnotmakepromotionalpromisesorguaranteestiedtotheCFA
designation.Donot:
Over-promiseindividualcompetence.
Over-promiseinvestmentresultsinthefuture.

Guidance—CFAInstituteMembership
MembersmustsignPCSannuallyandpayCFAInstitutemembershipdues
annually.Iftheyfailtodothis,theyarenolongeractiveMembers.


Guidance—UsingtheCFADesignation
Donotmisrepresentorexaggeratethemeaningofthedesignation.

Guidance—ReferencingCandidacyintheCFAProgram

Thereisnopartialdesignation.ItisacceptabletostatethataCandidate
successfullycompletedtheprograminthreeyears,ifinfacttheCandidate
did,butclaimingsuperiorabilitybecauseofthisisnotpermitted.

Guidance—ProperUsageoftheCFAMarks
TheCharteredFinancialAnalystandCFAmarksmustalwaysbeusedaftera
charterholder’sname.

RecommendationsforMembers
Membersshouldbesurethattheirfirmsareawareoftheproperreferencesto
amember’sCFAdesignationorcandidacy,aserrorsinthesereferencesare
common.

STUDYSESSION2—ETHICALAND
PROFESSIONALSTANDARDSINPRACTICE
ETHICSCASES:THECASESAREDIRECT
APPLICATIONSOFTHESTANDARDS
COVEREDINSTUDYSESSION1.DETAILS
REGARDINGTHESESPECIFICCASESARE
NOTTESTED.
Cross-ReferencetoCFAInstituteAssignedReading#3

ASSETMANAGERCODEOFPROFESSIONAL
CONDUCT
Cross-ReferencetoCFAInstituteAssignedReading#4
Therearesixcomponentstothe(voluntary)AssetManagerCodeof
ProfessionalConduct(the“Code”):(1)LoyaltytoClients,(2)Investment
ProcessandActions,(3)Trading,(4)RiskManagement,Compliance,and