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CFA Level III · Level III Core

CFA Code of Ethics and Standards of Professional Conduct

The Code of Ethics and Standards of Professional Conduct are the CFA Institute's rules for member and candidate behavior, grouped into seven Standards. To solve a question, find the facts, name the Standard that applies, test each action against it, then pick the response that best protects clients and markets.

What this chapter covers

This chapter sets out the Code of Ethics and the seven Standards (I to VII) that every CFA member and candidate must follow. It starts with the Preamble and Code, explains how the Code and Standards evolved and are adopted, then works through each Standard: Professionalism, Integrity of Capital Markets, Duties to Clients, Duties to Employers, Investment Analysis, Recommendations and Actions, Conflicts of Interest, and Responsibilities as a CFA Institute Member or Candidate.

At Level III the questions are not about reciting rules. You get a vignette about a manager, adviser or analyst and must decide which Standard is violated, what the person should have done, or what they should do next. Several Standards can apply to one case, so you must read facts closely and match each action to the right Standard.

Ethics also links to the rest of the paper. Client duties tie to portfolio management for individuals and institutions, where objectives and constraints define suitability. Performance reporting links to fair representation and to GIPS, which you study alongside this chapter. Ethics can appear inside other item sets and essays as well as in its own sets. Apply the Code and Standards exactly as written in the official curriculum text.

Ethical and Professional Standards carries a topic weight of 10-15%, and it is a common-core topic, so every candidate is tested on it whatever pathway they chose. The content is finite and rule-based, which makes it one of the most controllable areas to score in. Each item set is 12 points and each of its 4 multiple-choice questions is worth 3 points, so careless reading of one vignette costs real marks. Because there is no minimum score per topic, strong ethics marks can offset weakness elsewhere, and the pass decision rests on your total score against the Minimum Passing Score of 3600.

Code of Ethics and Standards of Professional Conduct: topics in the order to study them

  1. 1Code of Ethics and PreambleStart here because the Code gives the principles behind every Standard, and you will use them to reason through unfamiliar cases.
  2. 2Evolution and Adoption of the Code and StandardsShort and context-setting; it explains why the rules exist and how members and firms adopt them, so read it second.
  3. 3Professionalism (Standard I)It covers knowledge of the law, independence and objectivity, misrepresentation, and misconduct. Learn it first among the Standards because it sets the base for the rest.
  4. 4Integrity of Capital Markets (Standard II)Short, with two ideas to master: material nonpublic information and market manipulation.
  5. 5Duties to Clients (Standard III)It covers loyalty, prudence and care, fair dealing, suitability, performance presentation and confidentiality, and it links directly to client objectives and constraints.
  6. 6Duties to Employers (Standard IV)Study it after client duties, because many cases turn on how employer duties interact with duties to clients.
  7. 7Investment Analysis, Recommendations and Actions (Standard V)It builds on the client and employer duties by covering diligence, communication and record retention.
  8. 8Conflicts of Interest and Responsibilities as a Member (VI and VII)Finish with disclosure, priority of transactions, referral fees and conduct as a member or candidate, then practise mixed cases that combine all Standards.

How to prepare Code of Ethics and Standards of Professional Conduct

Aim to understand each Standard well enough to apply it to new facts, then drill with cases until your choices become reliable.

  1. Read the Code of Ethics and each Standard in the official text, and write a one-line plain-words summary of each.
  2. For every Standard, list the key duties and the typical violations. Note the exact conditions, such as what makes information material and nonpublic.
  3. Work through the application examples in the curriculum. For each, say which Standard applies, what was wrong, and what the correct action is.
  4. Practise vignettes in exam style. Underline each action in the facts, then test it against each Standard in turn, because one case often breaches more than one.
  5. On multiple-choice questions, eliminate options that break a Standard or are less protective of clients and markets, then choose the best remaining answer.
  6. On essay questions, follow the command word, name the Standard, and justify the answer in one or two precise sentences, since only what is asked is evaluated.
  7. Revise weak Standards every few days in short sessions, which suits study on a phone alongside a job.

Common mistakes in Code of Ethics and Standards of Professional Conduct

  • Memorising Standard names without applying them to facts

    Fix: Practise vignettes and always state which fact triggers which Standard and why.

  • Naming only one Standard when several are breached

    Fix: Test each action in the case against all seven Standards before answering.

  • Choosing the answer that is legal rather than the one that follows the stricter rule

    Fix: Compare the law with the Code and Standards and follow whichever is stricter.

  • Putting employer loyalty above duties to clients

    Fix: Remember that client and market integrity come first, and that Standard IV never overrides the law or client duties.

  • Writing long essay answers that bury the point

    Fix: Follow the command word, give the Standard and the action asked for, add a short reason, and stop.

  • Skipping the exact wording of conditions such as material and nonpublic

    Fix: Learn the precise tests from the official text and check each fact against them.

Last-day revision: Code of Ethics and Standards of Professional Conduct

  • The Code requires you to place the integrity of the investment profession and the interests of clients above your own interests, act with integrity, competence, diligence and respect, use reasonable care and independent judgment, and uphold the rules governing capital markets.
  • Standard I: know and follow the stricter of the law and the Code and Standards, keep independence and objectivity, and never misrepresent or commit misconduct.
  • Standard II: do not trade on or pass on material nonpublic information, and do not manipulate markets.
  • Standard III: act with loyalty, prudence and care, and treat clients fairly.
  • Suitability depends on the client's objectives and constraints, and you must update them regularly.
  • Present performance fairly, accurately and completely, and keep client information confidential unless the law requires disclosure or the client permits it.
  • Standard IV: be loyal to your employer, but never at the cost of breaking your duties to clients or the law.
  • Standard V: use diligence and a reasonable basis for recommendations, communicate clearly, and keep records.
  • Standard VI: disclose conflicts, give the transactions of clients and employers priority over your own personal transactions, and disclose referral fees.
  • Standard VII: do not misuse the CFA designation or the Program, and do not compromise exam integrity.
  • When more than one action is possible, choose the one that best protects clients and markets and follows the stricter rule.
  • No marks are lost for wrong answers, so answer every question.

Code of Ethics and Standards of Professional Conduct in other exams

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

Code of Ethics and Standards of Professional Conduct: frequently asked questions

How much of the Level III exam is Ethics?

Ethical and Professional Standards has a topic weight of 10-15%. It is part of the common core, so it is tested whichever pathway you choose. Questions may also appear inside other sets.

Do I need to memorise the Standards word for word?

No, but you must know each one precisely enough to apply it. Learn the key duties and the exact conditions, then practise on cases. Apply them as written in the official curriculum.

How are ethics questions asked on the exam?

They appear as item sets, each a vignette with 4 multiple-choice questions worth 3 points each, and as essay sets. In essays, read the command word and answer only what is asked, in the order given.

Does ethics link to GIPS?

Yes. Fair representation of performance under the Standards connects to GIPS, which sets out how firms present performance. Study them together so you can apply both to the same case.

Can strong ethics marks help me pass?

Yes. There is no minimum passing score per topic, and results depend on your total scale score against 3600. Ethics is rule-based and controllable, so it is a good place to secure marks.