Learning Module 3
Guidance for Standards I–VII

Knowledge of the Law — Members and Candidates must understand and comply with all applicable laws, rules, and regulations (including the Code and Standards) of any government, regulatory organization, licensing agency, or professional association governing their professional activities. In a conflict, follow the more strict law, rule, or regulation. Must not knowingly participate in or assist a violation, and must dissociate from any violation by others — e.g., removing one's name from a report, asking for a different assignment, or, in extreme cases, resigning.

Independence and Objectivity — Members and Candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities. Must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another's independence and objectivity. Modest gifts/entertainment are acceptable; gifts intended to influence are not. Best practice for issuer-paid travel: use commercial transportation at one's own/firm's expense rather than accept a corporate jet.

Misrepresentation — Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities. Covers guarantees of investment performance, exaggerated credentials, performance "benchmark shopping," and plagiarism — using others' work or ideas without attribution. Using research developed at a former firm (firm property) under one's own name after leaving is a violation.

Misconduct — Members and Candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit, or commit any act that reflects adversely on their professional reputation, integrity, or competence. Can include conduct outside work hours (e.g., substance abuse impairing job performance) if it reflects on professional integrity.

Competence — Members and Candidates must act with and maintain the competence necessary to fulfill their professional responsibilities. Competence = sufficient knowledge, skills, and abilities for the specific role; an unsuccessful outcome alone does not indicate incompetence. The duty is to both achieve and maintain competence — ongoing professional development is expected, though no specific program is mandated.

Material Nonpublic Information — Members and Candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on it. Material = would likely impact price or a reasonable investor would want to know before investing. Nonpublic = not yet disseminated to the marketplace generally (disclosure to a room of analysts does not make it public). The mosaic theory permits analysts to act on a combination of public information and nonmaterial nonpublic information, even if the resulting conclusion would have been material if stated directly by the company.

Market Manipulation — Members and Candidates must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants. Covers information-based manipulation (spreading false rumors, "pump and dump") and transaction-based manipulation (trades designed to create a false impression of activity/price, or cornering a market). Legitimate trading strategies based on perceived inefficiencies are not violations — intent is what matters.

Loyalty, Prudence, and Care — Members and Candidates have a duty of loyalty to clients and must act with reasonable care and prudent judgment, placing client interests before their employer's or their own. This sets a minimum benchmark — it does not automatically make every member a legal fiduciary, but requires acting in the client's best interest regardless of job function (even execution-only brokers must seek best execution).

Fair Dealing — Members and Candidates must deal fairly and objectively with all clients when providing investment analysis, making recommendations, taking investment action, or engaging in other professional activities. "Fairly" ≠ "equally" — premium service levels are permitted if disclosed and available to all who want them. For oversubscribed IPOs, shares should be allocated pro rata; investment professionals should forgo personal/family allocations to free up shares for clients.

Suitability — In an advisory relationship, Members and Candidates must (1) make reasonable inquiry into a client's experience, risk/return objectives, and financial constraints before recommending or acting, updating this regularly; (2) determine that an investment is suitable given the client's situation and written objectives; and (3) judge suitability in the context of the client's total portfolio, not just the single position. When managing to a specific mandate, recommendations/actions must be consistent with that mandate's stated objectives.

Performance Presentation — Members and Candidates must make reasonable efforts to ensure that performance information is fair, accurate, and complete. Prohibits cherry-picking favorable accounts, omitting unfavorable periods, or failing to disclose simulated/back-tested results as such. GIPS compliance is a recognized best practice (though not separately examined here in detail).

Preservation of Confidentiality — Members and Candidates must keep information about current, former, and prospective clients confidential unless: (1) the information concerns illegal activities by the client; (2) disclosure is required by law; or (3) the client/prospective client permits disclosure. Confidentiality survives the end of the client relationship.

Loyalty — In matters related to employment, Members and Candidates must act for the benefit of their employer and not deprive the employer of their skills, divulge confidential information, or otherwise cause harm. Does not require subordinating personal/family obligations, and does not prevent reasonable job-search preparations — but solicitation of clients, misappropriation of trade secrets/client lists, and self-dealing before departure are violations. Whistleblowing that protects clients or market integrity may justify otherwise-prohibited conduct (e.g., copying records) if not done for personal gain.

Additional Compensation Arrangements — Members and Candidates must not accept gifts, benefits, compensation, or consideration that competes with or might create a conflict with their employer's interest, unless they obtain written consent from all parties involved. "Written consent" includes any documentable communication, such as email.

Responsibilities of Supervisors — Members and Candidates must make reasonable efforts to ensure that anyone subject to their supervision or authority complies with applicable laws, rules, regulations, and the Code and Standards. Requires an adequate compliance system (not just a code of ethics on paper) — establishing, documenting, communicating, and monitoring procedures, plus prompt investigation once a possible violation is known. A supervisor who lacks authority to fix an inadequate system should escalate, and may need to decline supervisory responsibility in writing until it's corrected.

Diligence and Reasonable Basis — Members and Candidates must (1) exercise diligence, independence, and thoroughness in analyzing investments, making recommendations, and taking investment action, and (2) have a reasonable and adequate basis, supported by appropriate research, for any analysis, recommendation, or action. Applies to use of secondary/third-party research (must have reasonable confidence it's sound), quantitative models, and selecting external sub-advisers (requires real due diligence, not fee comparison alone).

Communication with Clients and Prospective Clients — Members and Candidates must: (1) disclose the nature of services and associated costs; (2) disclose the basic format/principles of the investment process and promptly disclose material changes; (3) disclose significant limitations and risks of the investment process; (4) use reasonable judgment in identifying important factors and include them in communications; and (5) distinguish between fact and opinion in presenting analyses and recommendations. Disclosure obligations are ongoing, not one-time.

Record Retention — Members and Candidates must develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients. Records (including e-mails, texts, and social media posts) generally belong to the firm, not the individual — a departing employee cannot take them. In the absence of regulatory or firm guidance, CFA Institute recommends retaining records for at least seven years.

Avoid or Disclose Conflicts — Members and Candidates must avoid or make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to clients, prospective clients, and employer; disclosures must be prominent, in plain language, and effectively communicated. Common sources: incentive-based compensation, personal stock ownership in recommended securities, and board/director service (which can create competing duties and access to material nonpublic information).

Priority of Transactions — Investment transactions for clients and employers must take precedence over personal transactions or those for which a Member or Candidate is the beneficial owner. Having the same position as clients is not itself a violation; the concern is personal trades adversely affecting client interests. Best-practice procedures: limit/preclear participation in IPOs and private placements, establish blackout/restricted trading periods, and require duplicate trade confirmations.

Referral Fees — Members and Candidates must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from or paid to others for the recommendation of products or services. Applies equally to third-party referral arrangements and purely internal (interdepartmental) referral payments — both must be disclosed, including the nature and estimated value of the benefit.

Conduct as Participants in CFA Institute Programs — Members and Candidates must not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation, or the integrity, validity, or security of CFA Institute programs. Covers cheating, disclosing confidential exam content (even broad topical areas not yet released), circumventing exam security, and misusing a CFA Institute volunteer role for personal/business advantage. Discussing nonconfidential curriculum material or general study strategies in study groups is permitted.

Reference to CFA Institute, the CFA Designation, and the CFA Program — When referring to CFA Institute, membership, the CFA designation, or candidacy, Members and Candidates must not misrepresent or exaggerate the meaning or implications of membership, the designation, or candidacy. Factual statements are fine ("passed all three exams on the first attempt"); statements implying superior performance or ability ("CFA charterholders achieve better returns") are not. Candidates must clearly state candidate status and must not imply a partial designation (e.g., "CFA, Level II" is improper; "Level II candidate in the CFA Program" is proper).