CFA Level II Exam · Code of Ethics and Standards of Professional Conduct

CFA Code of Ethics and Preamble: Six Components Explained

Updated 7 October 2026 · Fact-checked

The Preamble explains why the Code and Standards exist: to protect the integrity of the profession and put clients and markets first. The Code of Ethics has six components. In an item set, find the conduct described, match it to the component or Standard it breaches, and choose the action that restores compliance.

Understand Preamble and Code of Ethics

The Preamble is the opening statement of the Code and Standards. It says that the Code and Standards exist to maintain the reputation of the investment profession and the trust that clients, employers and markets place in it. It sets the tone: investment professionals owe duties beyond narrow self-interest.

The Code of Ethics is a short list of principles that applies to all CFA Institute members and CFA candidates. It is the high-level statement of values. The Standards of Professional Conduct are the seven detailed rules that put those values into practice. Think of the Code as the "why" and the Standards as the "what you must do".

The Code has six components, in this order:

1. Act with integrity, competence, diligence, respect and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets.
2. Place the integrity of the investment profession and the interests of clients above their own personal interests.
3. Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities.
4. Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession.
5. Promote the integrity and viability of the global capital markets for the ultimate benefit of society.
6. Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.

Check the exact wording against the official text you study from, because the exam expects you to apply it faithfully.

On Level II the Code is rarely tested as a recall list. It appears inside item sets where you must see that a person's conduct conflicts with a component, and then name the Standard that applies. Learn the six components well enough to recognise their ideas in plain language: the general duty of integrity and respect, clients first, independent judgment, professional reputation, market integrity, and competence.

Key formulas to remember

Who the Code applies to: Code of Ethics + Standards of Professional Conduct → all CFA Institute members and CFA candidates; Candidates are bound as well as charterholders. Do not assume the Code only covers charterholders.
Component 1: Duty of conduct: Act with integrity, competence, diligence, respect and in an ethical manner with the public, clients, prospects, employers, employees, colleagues and other market participants; This is the broad duty to everyone you deal with.
Component 2: Clients first: Place the integrity of the profession and the interests of clients above your own personal interests; Links to Loyalty, Prudence and Care, and Priority of Transactions.
Component 3: Care and judgment: Use reasonable care and exercise independent professional judgment in analysis, recommendations, actions and other professional activities; Links to Independence and Objectivity and Diligence and Reasonable Basis.
Component 4: Reflect credit: Practice and encourage others to practice in a professional and ethical manner that reflects credit on themselves and the profession; Links to Misconduct and to supervisor duties.
Component 5: Market integrity: Promote the integrity and viability of the global capital markets for the ultimate benefit of society; Links to Material Nonpublic Information and Market Manipulation.
Component 6: Competence: Maintain and improve your professional competence and strive to maintain and improve the competence of other investment professionals; Links to Competence under Standard I.

How to solve Preamble and Code of Ethics questions

Use this method for any item-set question that asks which part of the Code is relevant, or whether conduct is consistent with it.

1Read the question stem first so you know whether it asks about a violation, a component, or the correct action.
2Scan the vignette and mark who acts, who is affected (client, employer, market, public) and what exactly was done or omitted.
3Ask which of the six components the conduct touches: the general duty of integrity and respect, clients first, judgment, reputation, market integrity, or competence.
4Find the matching Standard of Professional Conduct, since answers often hinge on the Standard that puts the Code into practice.
5Test each option against the facts in the vignette only. Reject any option that adds facts or assumes intent not stated.
6Pick the option that puts clients and market integrity ahead of personal interest, and that is the most complete and compliant action.
7Recheck that your choice does not itself breach a different component.

Quickest way: Match the conduct to the component

When to use it: Use when time is short and the question asks which component or principle the conduct breaches or supports.

Reduce the vignette to one sentence: who did what to whom.
Label the affected party: client, employer, market, profession or self.
Client affected: think clients-first and care. Market affected: think market integrity. Self-development: think competence. Reputation: think reflect credit.
Choose the option that matches your label and discard the rest.
If two options remain, choose the one that puts the client or the market first.

Common mistakes in Preamble and Code of Ethics

Treating the Code of Ethics and the Standards as the same thing.
Both are in the same Handbook and sound similar.
Fix: Remember the Code is the short set of principles, and the seven Standards are the detailed rules. Name the Standard when the question asks for a specific obligation.
Thinking the Code applies only to charterholders.
People link ethics with the designation.
Fix: Remember the Code and Standards bind CFA Institute members and CFA candidates.
Choosing an answer that benefits the firm or the analyst over the client.
The option sounds commercially sensible.
Fix: Apply the clients-first component. Where a conflict exists, the client's interest and market integrity come first.
Memorising the components in the wrong form and losing the idea.
Candidates learn a slogan list rather than the meaning.
Fix: Learn each component as a plain-language idea and practise linking it to a Standard.
Assuming that legal compliance alone satisfies the Code.
Candidates equate ethics with the law.
Fix: The Code can demand more than local law. Where law and the Code differ, follow the stricter standard, as set out under Knowledge of the Law.
Adding facts that the vignette does not give, such as assuming bad intent.
Candidates read in a story from experience.
Fix: Judge only what the vignette states. Lack of intent does not remove a breach where the conduct itself breaches a Standard.

Worked examples

Example 1

Vignette: Mira Shah, a CFA candidate, is a portfolio manager. Before placing a large client order in a thinly traded stock, she buys the stock for her own account to benefit from the expected price rise. The client's order is then filled at a higher price.

Q1. Which Code of Ethics component is most directly breached?
A. Maintain and improve professional competence
B. Place clients' interests above her own
C. Promote viability of the global capital markets

Q2. Which Standard of Professional Conduct most directly addresses Shah's conduct?
A. Priority of Transactions
B. Fair Dealing
C. Suitability

Show the solution

Q1: Identify the conduct. Shah put her own trade ahead of the client's order, and the client paid a worse price.
Match it to the component. The conduct is a clear case of placing her own interest above the client's.
Competence is not the issue, and market viability is secondary here. The best fit is B.
Q2: Move from the Code to the Standard that puts it into practice. The Standard on Priority of Transactions requires that client transactions take precedence over transactions for the analyst's own account. Shah traded for herself before the client's order was placed.
Fair Dealing is about treating clients fairly when making recommendations or taking action across different clients. The vignette describes one client and a personal trade, so it does not fit. Suitability concerns whether a recommendation fits a client's circumstances, and that is not the issue here.
Q2 answer is A.

Answer: Q1: B. Q2: A.

Example 2

Vignette: Arjun Rao is a research analyst at a global asset manager. His firm is based in a country where local law does not prohibit trading ahead of research reports. Rao's team trades for their own accounts before the firm releases a new research report to clients. Rao's supervisor says that because it is legal locally, the team may keep doing it. Rao is a CFA Institute member.

Q1. Which statement best reflects the Code and Standards?
A. Local law settles the question, so the practice is allowed
B. Rao must follow the stricter of local law and the Code and Standards
C. Rao must follow the Code only if the client asks

Q2. Which Code idea does the team's trading for their own accounts before clients receive the report most directly conflict with?
A. Reflecting credit on the profession only
B. Placing clients' interests above their own personal interests
C. Maintaining his own competence

Show the solution

Q1: When law and the Code and Standards differ, members and candidates must follow the stricter one. This is the Knowledge of the Law principle.
Local legality does not release Rao from the Code. A is wrong, and C invents a condition. The answer is B.
Q2: The vignette states that the team trades for their own accounts before clients receive the report. The team's personal interest is served ahead of clients. This conflicts with putting clients' interests above personal interests.
Reflecting credit is affected too, but option A says only that, and the central breach is the clients-first duty. Option C is not the issue. The answer is B.

Answer: Q1: B. Q2: B.

Exam tips

Learn the six components as plain ideas and be able to link each to at least one Standard.
In item sets, the Code question is often a stepping stone: name the component, then choose the action that fixes the breach.
When law and the Code differ, the stricter one wins. Expect this to be tested.
Ignore options that rely on facts the vignette does not give. Answer only from the text.
There is no penalty for wrong answers, so never leave an ethics question blank.

Preamble and Code of Ethics in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Preamble and Code of Ethics: frequently asked questions

How many components does the CFA Code of Ethics have?

The Code has six components, starting with the general duty to act with integrity, competence, diligence, respect and in an ethical manner. The others cover clients first, reasonable care and independent judgment, reflecting credit on the profession, promoting market integrity, and maintaining competence. Check the wording against the official Handbook text.

What is the purpose of the Preamble?

The Preamble explains why the Code and Standards exist. It states that they protect the integrity of the profession and maintain the trust of clients and markets. It sets the spirit in which you should read the Code and Standards.

Does the Code of Ethics apply to CFA candidates?

Yes. The Code and Standards apply to CFA Institute members and CFA candidates. You are bound while you are a candidate, not only after you earn the charter.

How is the Code tested at Level II?

It appears inside item sets. You read a vignette, identify the conduct, link it to a component or Standard, and choose the compliant action. Questions test application, not recall of a list.