CFA Level I — Ethics and Professional Standards

Subtopic: The Code of Ethics (a.k.a. Your Internal Compliance DJ)

You already bookmarked key dates, skimmed the resources, and promised not to turn the exam room into Ocean's Eleven. Now we level up: from “don’t cheat on the test” to “don’t cheat the profession.”

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Why this matters (and not just for multiple-choice glory)

The CFA Institute Code of Ethics is the high-level, values-first framework that tells you who you are in this profession. It’s the vibe check before the Standards of Professional Conduct bring the receipts. If the Standards are the rulebook, the Code is the compass—pointing you toward decisions that build trust in clients, markets, and, yes, your future resume.

• In previous modules, you saw your ethical responsibilities as a candidate (no sharing exam secrets, no sketchy behavior). The Code stretches that mindset to your entire career.
• Exam reality: ethics shows up everywhere. If you know the Code, Standards questions go from “help me” to “hand me my cape.”

Big idea: The Code is principles-first and global. It asks not just “Is it legal?” but “Would this keep markets healthy and clients safe?”

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The Six Big Promises (Paraphrased Like a Human, Not a Robot)

These are the core commitments of the CFA Institute Code of Ethics, distilled without the legalese. Think of them as six switches that should always be ON.

1. Put the profession and your clients ahead of yourself.

• Translation: No “me first” moves. If it benefits you but dents client trust or the profession’s reputation, it’s a no.

2. Be the grown-up: act with integrity, competence, diligence, and respect.

• Translation: Do quality work, tell the truth, follow through, and don’t be a menace.

3. Use care and independent judgment.

• Translation: Don’t rubber-stamp. Analyze, question, and decide based on evidence—not vibes, not pressure.

4. Practice ethics and help others do the same.

• Translation: Model the behavior. If your team’s culture is “compliance is optional,” you’re not just allowed to care—you’re obligated.

5. Support market integrity for the good of society.

• Translation: Healthy markets are a public good. Anything that pollutes price discovery? Trash it.

6. Keep learning and level up your competence.

• Translation: Finance evolves faster than your phone’s battery drain. Stay current so your advice remains trustworthy.

Note: This is a paraphrase for learning. For exam prep and real-world use, read the official language in the Standards of Practice Handbook.

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Code vs. Standards: Siblings With Very Different Personalities

• Code of Ethics: Principles. Who you are and what you value.
• Standards of Professional Conduct: Rules. What you must do (and absolutely must not do) in specific scenarios.

Thing	Code of Ethics	Standards of Professional Conduct
Nature	Principles	Detailed rules + guidance
Scope	Identity + values	Day-to-day behaviors
Tone	"Be this kind of professional"	"Do this. Never do that."
Exam use	Frames the right answer	Drives specific answer choices

Pro tip: When a question feels gray, ask: which option best preserves client interests, market integrity, and independent judgment? That’s the Code whispering. Then use the Standards to lock in the exact rule.

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Common Misconceptions (Destroy These Before They Destroy Your Score)

• “If it’s legal, it’s fine.” No. The Code sometimes asks for more than the law.
• “Compliance will tell me.” Cute, but the Code says you’re personally responsible—even when pressured.
• “It’s just for work.” Also no. Your social media “thought leadership” and side hustles touch clients and markets too.

Ethics is not a fire extinguisher. It’s fireproofing.

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Everyday Scenarios: The Code in Action

1. The Gift That Keeps on Gifting

• Situation: A client offers you playoff tickets worth $$$ the night before you issue a recommendation.
• Code lens: Ask if this skews judgment or looks like it could. Independent judgment and client-first values say disclose, preclear, or decline. “Don’t worry, I’m totally unbiased” is not a control.

2. The Hype Post

• Situation: You want to post a backtest with “eye-popping returns” to LinkedIn.
• Code lens: Integrity + diligence = present fairly, with context and methodology. If it misleads, it erodes trust. Don’t turn your network into a pump-and-pray.

3. The Whisper

• Situation: You overhear material, nonpublic info in an elevator.
• Code lens: Market integrity matters. Don’t trade, don’t tip. Walk away, document, and alert compliance if needed.

4. The Boss Says “Adjust It”

• Situation: Boss wants you to “massage” an unfavorable model assumption.
• Code lens: Independent judgment and integrity are non-negotiable. Push back, document, escalate. Keeping your job by abandoning the Code is losing bigger.

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A Mini Decision Algorithm (Stick This in Your Brain’s Dock)

IF (client interests or market integrity could be harmed)
    THEN don’t do the thing.
ELSE IF (independent judgment is compromised or could appear compromised)
    THEN disclose, mitigate, or step back.
ELSE IF (you wouldn’t put it on the front page of a reputable newspaper)
    THEN rethink it.
ALWAYS: document, disclose where appropriate, and seek guidance proactively.

The Code is allergic to shortcuts. Documentation is your EpiPen.

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Mapping the Promises to Real Moves

Code Promise	What It Looks Like	Common Trap	Quick Fix
Client/profession > self	Declining a lucrative but conflicted gig	“Everyone does side deals”	Disclose, obtain consent, or pass
Integrity + competence	Balanced research, no cherry-picking	Selective data to please a PM	Use complete data, present risks
Independent judgment	Challenging groupthink	Herding with the team	Write dissent, record rationale
Practice + encourage ethics	Mentoring juniors on conduct	“It’s not my job”	Make it your job—culture is cumulative
Market integrity	No MNPI trading, no manipulation	Casual tips, rumor-fueled trades	Training + preclearance protocols
Continuous learning	Ongoing education, standards refresh	“I learned this years ago”	Annual refreshers, new methods

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Historical Reality Check: Why the Code Exists

Financial history has a recurring villain: erosion of trust. From accounting blowups to crisis-era conflicts, every scandal is a masterclass in “what not to do.” The Code keeps the profession from speedrunning that timeline again.

Trust is the compounding asset. Lose it once, and your discount rate explodes.

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How the Code Helps on Exam Day

• When two answers both look legal, choose the one that better protects clients/markets and preserves independent judgment.
• When one answer is “technically allowed” but undermines trust, assume the CFA Institute wants the higher ground.
• Look for hints like: disclosure, preclearance, independent review, separating research and banking, declining gifts, escalating concerns.

Engage your inner narrator: “Does this choice make future-you proud and markets safer?” If yes, you’re likely aligned with the Code.

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Quick Contrast: Code vs. Candidate Responsibilities (from the intro module)

• Candidate ethics: Don’t cheat, don’t share exam content, follow all exam rules. It’s the entry ticket.
• Code of Ethics: Be the person who safeguards client interests and market integrity every day. It’s the operating system.

The progression: you didn’t just agree to sit nicely for an exam—you opted into a lifetime of higher standards.

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Reflection Prompts (because active recall is the new caffeine)

• Where might my independent judgment be most at risk—boss pressure, client pressure, or self-interest?
• What disclosure or control would turn a gray area into a comfortable green light?
• If a junior asked me “What’s the right thing here?” what story would I tell from my own experience?

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TL;DR + Next Steps

• The Code of Ethics is your north star: client-first, integrity always, independent judgment, build ethical culture, protect markets, keep learning.
• It’s broader than law, bigger than compliance, and designed for a global profession.
• For the exam: prefer answers that maximize trust and transparency, even when they require more effort.

Action items:

• Read the official Code and Standards in the Standards of Practice Handbook (latest edition).
• Build a personal “go-to” checklist: disclose, document, preclear, escalate.
• Practice scenario questions focusing on judgment, not just memorization.

Final thought: Ethics isn’t about catching you out—it’s about calling you up. The designation says you know finance. The Code says we can trust you with it.