Guidance for Standard I: Professionalism: formula sheet

Key formulas

Stricter rule

Applicable law stricter than Code → follow the law. Code stricter than applicable law → follow the Code.

Applies to every conflict between applicable law, rules and the Code and Standards. Always pick the stricter.

Dissociation duty

Know of a violation → do not participate → dissociate (required) → reporting encouraged

Dissociation is the required action. Reporting to a supervisor, compliance or a regulator is encouraged or recommended, not mandatory under the Standard.

Applicable law in cross-border cases

Applicable law depends on the facts: where you work, where the clients are, where the business is conducted

Client residence alone does not decide it. If two applicable laws or the Code conflict, follow the stricter. Seek legal or compliance advice when unsure.

Record of dissociation

Written note of concerns, discussion with supervisor or compliance, and withdrawal from the activity

Document what you did and why. Dissociation steps may include ceasing work on the matter.

Core rule

Members must not knowingly make misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

Knowing conduct violates the Standard. The Handbook also treats reckless or careless misleading statements and omissions as violations. A good-faith error promptly corrected is not a violation.

Plagiarism test

Using another's work (words, ideas, data, charts, models) + presenting it as your own = violation

Fix by giving credit to the source. Rephrasing does not remove the duty to credit.

Omission test

Statement + omitted fact that changes its meaning = misleading

Leaving out a relevant fact can be as serious as stating something false.

Work product rule

Work product owned by the employer may be used by the firm's employees under the firm's policy, without crediting individual contributors

Do not claim individual credit for it, and do not take it to a new employer without permission.

Guarantee rule

No guarantee or promise of investment results that cannot be assured

Claims about past performance must be fair, accurate and complete.

Standard I(D) rule

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.

Learn the two limbs: dishonest conduct, and acts that reflect adversely on reputation, integrity or competence.

Test for violation

Violation if the act involves dishonesty, fraud or deceit, OR reflects adversely on reputation, integrity or competence.

Either limb is enough. The act need not be a crime and no client loss is needed.

Compliance practice

Firms should develop and adopt a code of ethics, disseminate policies prohibiting misconduct, and check the references and backgrounds of prospective employees.

These are the recommended firm-level compliance steps in the guidance for I(D).

Standard I(E) core duty

Competence = act with and maintain the competence needed for your work

Applies to the tasks you accept and the advice you give. Do not take on work beyond your skills without a fix.

Continuing development duty

Maintain and improve professional skills and knowledge

An ongoing duty. A one-time qualification does not satisfy it by itself.

Acceptable responses to a skills gap

Train, get supervision or expert help, or decline the work

These are the compliant options. Carrying on unprepared is the breach.

Quick revision

• I(A): when law and the Code differ, follow the stricter one.
• I(A): if you know of a violation by others, dissociate yourself from it, and consider reporting where appropriate.
• I(B): use reasonable care and judgment to keep independence and objectivity in your work.
• I(B): modest gifts may be acceptable if disclosed, but gifts that could compromise objectivity are a risk.
• I(B): be careful with issuer-paid research and compensation tied to the outcome of a recommendation.
• I(C): do not knowingly make false or misleading statements about your services, qualifications or investments.
• I(C): using others' work without credit is plagiarism and a violation.
• I(D): do not engage in conduct involving dishonesty, fraud or deceit, or conduct that reflects poorly on your integrity or professional reputation.
• I(E): do not claim skills you lack; get help or decline work outside your competence.
• For each case, find the facts, name the standard, and state the compliant action.
• Answer only what the command word asks, and give the number of responses requested.
• Check the changes in the current edition of the Code and Standards against your notes before the exam.

Common mistakes

• Following local law because it is the law, even when the Code is stricter. Fix: Apply the stricter rule. If the Code is tougher, follow the Code. Law is the floor, not the ceiling.
• Breaking applicable law to meet the Code. Fix: The stricter rule applies, but you may not violate an applicable law. If the law is tougher, follow the law.
• Thinking rephrased work needs no credit. Fix: Remember that ideas, data and analysis also need credit, even when put in your own words.
• Treating all omissions as violations. Fix: Ask whether the omitted fact would change how a reasonable person reads the statement.
• Thinking a criminal conviction is needed for a violation. Fix: Remember the test is dishonesty or adverse reflection. A conviction is not required.
• Assuming all personal conduct is covered. Fix: Only conduct that bears on honesty, integrity, reputation or competence counts. A private matter with no such link is not a violation.
• Thinking the standard requires expertise in everything Fix: Remember the standard asks for competence in the work you do. Admitting a gap and fixing it is compliant.
• Saying any skills gap is a violation Fix: Always check the response. Training, expert help or declining is acceptable. Ignoring the gap is the breach.

Exam tips

• When a vignette lists two rules, find the stricter one before reading the options. It usually decides the answer.
• In essay sets, if the command word is 'recommend' or 'determine', name the action or conclusion first, then give one line of reasoning.
• Reject options that say 'follow local law only' unless the applicable law is stricter than the Code.
• For dissociation questions, the required element is stopping involvement. Prefer answers that do this, and treat reporting to a supervisor, compliance or regulator as encouraged, not required.
• Remember that the Code and Standards apply even where no securities law exists.
• Look for the word knowingly and check what the member knew or failed to check before choosing violation. Reckless or careless misstatements also violate the Standard.
• In plagiarism items, the right answer usually adds credit or removes the unattributed material.
• Watch for guarantees of returns and for performance shown without the unfavorable periods.