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CFA Ethics Coaching

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CFA Ethics present a framework for ethical conduct in the investment profession by focusing on the CFA Institute Code of Ethics and Standards of Professional Conduct as well as the Global Investment ...

CFA Ethics present a framework for ethical conduct in the investment profession by focusing on the CFA Institute Code of Ethics and Standards of Professional Conduct as well as the Global Investment Performance
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    CFA Ethics Coaching CFA Ethics Coaching Document Transcript

    • III Duties to ClientsA. Loyalty, Prudence, and Care. Members and candidates havea duty of loyalty to their clients andmust act with reasonable care and exercise prudent judgment.Members and candidates must actfor the benefit of their clients and place their clients’ interestsbefore their employer’s or their owninterests. In relationships with clients, members and candidatesmust determine applicable fiduciaryduty and must comply with such duty to persons and interests towhom it is owed.B. Fair Dealing. Members and candidates must deal fairly andobjectively with all clients whenproviding investment analysis, making investmentrecommendations, taking investment action, orengaging in other professional activities.C. Suitability.1. When members and candidates are in an advisory relationshipwith a client, they must:a. Make a reasonable inquiry into a client’s or prospective client’sinvestment experience, risk andreturn objectives, and financial constraints prior to making anyinvestment recommendation or takinginvestment action and must reassess and update this informationregularly.b. Determine that an investment is suitable to the client’s financialsituation and consistent with theclient’s written objectives, mandates, and constraints beforemaking an investment recommendationor taking investment action.c. Judge the suitability of investments in the context of the client’stotal portfolio.2. When members and candidates are responsible for managing aportfolio to a specific mandate,
    • strategy, or style, they must only make investmentrecommendations or take investment actions thatare consistent with the stated objectives and constraints of theportfolio.2www.edupristine.com© Neev Knowledge Management – PristineIII Duties to ClientsD. Performance Presentation. When communicating investmentperformance information, membersor candidates must make reasonable efforts to ensure that it isfair, accurate, and complete.E. Preservation of Confidentiality. Members and candidatesmust keepformer, and prospective clients confidential unless:1. The information concerns illegal activities on the part of theclient or prospective client,2. Disclosure is required by law, or3. The client or prospective client permits disclosure of theinformation3www.edupristinainformation about current,© Neev Knowledge Management – PristineIII Duties to ClientsA. Loyalty, Prudence, and Care. Members and candidates havea duty of loyalty to their clients andmust act with reasonable care and exercise prudent judgment.Members and candidates must actfor the benefit of their clients and place their clients’ interestsbefore their employer’s or their owninterests. In relationships with clients, members and candidatesmust determine applicable fiduciaryduty and must comply with such duty to persons and interests towhom it is owed• Clients interest always comes before employer’s or personal
    • interest• Exercise prudence ,care, skill and diligence while makinginvestment decisions in a way in which areasonable investor acting in like capacity would do.• Adhere with fiduciary responsibility specific to a client• Ensure clients objectives and expectation for a performance ofaccount are reasonable and inaccord with clients circumstances and risk appetite• Investment decision should be judged in the context of totalportfolio• Duty of loyalty includes voting proxies in an informed mannernecessary as it may not benefit the client• Client brokerage should be used to benefit the client.4www.edupristine.commanner.Voting all proxies may not be© Neev Knowledge Management – PristineIII A Loyalty, Prudence, and Care• Recommended Procedure for Compliance– Submit to each client, at least quarterly, an itemized statementshowing the funds and securities inpossession plus debits, credits and all the transactions during thatperiod.– Follow all applicable rules and laws– Establish the investment objectives of the client - Consider thesuitability of the portfolio relative to theclient’s needs and circumstances or the investment’s basiccharacteristics or the characteristics of thetotal portfolio.– Diversify– Fair Dealing with all the clients– Disclose conflicts of interest– Disclose compensation arrangements– Vote proxies– Maintain confidentiality– Seek best execution
    • – Place client interests first5www.edupristine.com© Neev Knowledge Management – PristineApplication of Standard III A (Loyalty,Prudence, and Care)Example 1:Don Davis a member uses a broker for clients account. Thebroker is an old friend of Davis. Hecharges very high fees and does not always provide the bestexecution . The broker however allowsDavis to use his vacant apartment for personal use. Davis usesthe apartment to host any clients thatmay be visiting them.Comment 1:This is a violation of the Standard since the member failed to getbest execution for the client. Alsoclient brokerage should only be used for services that will directlybenefit the client. Use of thebrokerage for any other activity is strictly prohibited.Example 2:Carrie Moss runs an investment management firm. She directs allher brokerage to Neo Ltd. a privatebroking firm. She directs all trades originating from accountsreferred to her by Neo and also any otheraccount. In return Neo provides her some account managementbusiness. Comment on whether theabove complies with the CFA Standards.Comment 2:Two instances of violation of the CFA Standards can be found inthe above case. If the broker fails toprovide the best price or execution then Carrie should change herbrokers. She must search for thebroker who can provide the least execution cost. Another violationoccurs if the broker
    • relationship is not disclosed to the client.