Level III Core · Code of Ethics and Standards of Professional Conduct

CFA Code of Ethics and Preamble Explained

Updated 8 October 2026 · Fact-checked

The CFA Institute Code of Ethics is a short set of principles that all members and candidates must follow. The Preamble explains why it exists. Six components cover acting with integrity, putting clients first, using independent judgment, protecting markets, being competent and upholding the profession. In exam questions, match the facts to the right component.

Understand Code of Ethics and Preamble

The Code of Ethics is the foundation of the CFA Institute ethics framework. It is short, and it is broad. The Standards of Professional Conduct then turn those principles into specific rules. If you understand the Code, you can reason your way through Standards questions you have never seen.

The Preamble gives the purpose. It says that the investment profession depends on trust. Clients, employers and markets must be able to rely on members and candidates. The Code is there to protect that trust and to promote the integrity and viability of global capital markets for the ultimate benefit of society.

The Code has six components. In substance, members and candidates must: 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 market participants; place the integrity of the investment profession and the interests of clients above their own personal interests; use reasonable care and exercise independent professional judgment when conducting investment analysis, making recommendations, taking investment actions and engaging in other professional activities; practice and encourage others to practice in a professional and ethical manner that reflects credit on themselves and the profession; promote the integrity and viability of the global capital markets for the ultimate benefit of society; and maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.

Think of the duties as running in four directions: to clients, to employers, to the profession and to the investment community (markets). Most exam facts touch one of these. Ask who was harmed or who was owed something. That points you to the right component.

On Level III, ethics is examined in item sets and essay sets, usually as short case situations. You are asked whether a member or candidate has violated the Code and Standards, and why. The Code is your reasoning base. You then name the specific Standard that applies. Always apply the text as written, not your local custom or what feels fair.

Key rules to remember

Component 1: Act ethically: Act with integrity, competence, diligence, respect and in an ethical manner with all parties; Covers the public, clients, prospective clients, employers, employees, colleagues and other market participants. Use it for general conduct questions.
Component 2: Clients first: Integrity of the profession and client interests above personal interests; Use it when a member benefits personally at the expense of a client or the profession.
Component 3: Independent judgment: Reasonable care and independent professional judgment; Applies to analysis, recommendations, investment actions and other professional activities. Think of pressure from issuers, bosses or clients.
Component 4: Reflect credit: Practice and encourage others to practice in a professional and ethical manner that reflects credit on self and profession; Includes encouraging others. Use it for conduct that damages reputation.
Component 5: Markets: Promote integrity and viability of global capital markets for the benefit of society; Use it for market manipulation, misuse of inside information and similar facts.
Component 6: Competence: Maintain and improve own competence; strive to maintain and improve that of other investment professionals; Use it for skills, knowledge and training questions.
Four directions of duty: Clients | Employers | Profession | Investment community; A fast sorting tool. Decide which party is owed the duty before choosing the Standard.
Memory aid for the six components: Act, Place, Use, Practice, Promote, Maintain; These are the opening verbs of the six components in order. Say them out loud a few times. Then attach a key phrase to each: ethical conduct, clients first, independent judgment, credit to the profession, markets, competence.

How to solve Code of Ethics and Preamble questions

Use this method for any question that asks whether a member or candidate has acted in line with the Code. Work from facts to principle, then to the Standard.

1Read the facts and list what the member or candidate actually did. Ignore what they say they intended.
2Identify who is affected: a client, an employer, the profession or the wider market. This is the direction of duty.
3Match the conduct to the closest component of the Code of Ethics, for example clients first or independent judgment.
4Name the specific Standard that applies, such as loyalty, fair dealing, suitability or market manipulation.
5Decide whether there is a violation. Apply the rule as written, even if local practice or the law is more lenient.
6If the question asks what the member should do, choose the action that protects clients and markets first, then complies with the Standard. Disclosure alone does not always cure a problem.
7Write the answer with the command word in mind: identify, state, justify. Give the conclusion, then one reason tied to the Code or Standard.

Quickest way: Four-direction sort

When to use it: Use this when you have about two minutes per multiple-choice question and the options look similar.

Underline the conduct in the stem.
Ask which party is owed the duty: client, employer, profession or market.
Remove any option that puts personal interest above clients or ignores independent judgment.
Remove any option that only follows local law when the Code or Standards are stricter.
Pick the option that fits the Code component and the named Standard. If two remain, choose the one that protects the client and markets more directly.

Common mistakes in Code of Ethics and Preamble

Treating the Code of Ethics and the Standards as the same thing.
Both are in the same section and use similar language.
Fix: Remember the Code is the set of six broad principles. The Standards are the detailed rules that apply them. Cite both when you justify.
Stating the six components in your own loose words and missing key ideas.
Candidates memorise a summary and lose the precise content.
Fix: Learn each component's key phrase, such as clients above personal interests or independent professional judgment, and use it.
Assuming that following local law means no violation.
Candidates think law is the highest test.
Fix: Members must follow the stricter of the law and the Code and Standards. The Code can require more than the law does.
Forgetting the duty to encourage others and to improve others' competence.
Candidates focus on personal behaviour only.
Fix: Remember that components 4 and 6 include encouraging others and striving to improve other professionals' competence.
Choosing an answer that only discloses a problem when the Standard needs the member to stop or avoid it.
Disclosure sounds safe and ethical.
Fix: Check the exact Standard. Some conflicts can be cured by disclosure, but some conduct, such as manipulation, cannot.

Worked examples

Example 1

A credit research analyst at an asset manager publishes ratings that her clients rely on. She is under pressure from a company's management to upgrade the company's rating before an upcoming bond issue. Her own research does not support an upgrade. She keeps her rating unchanged and records her reasons. Which component of the Code of Ethics does her action best reflect? A. Maintaining and improving professional competence. B. Using reasonable care and independent professional judgment. C. Promoting the viability of global capital markets. D. Practising in a way that reflects credit on the profession.

Show the solution

List the facts: external pressure to change a rating, research does not support it, she holds her view and documents it.
Identify the direction of duty: clients who rely on her ratings, and the market.
Match the conduct: resisting pressure and relying on her own analysis is exercising independent professional judgment with reasonable care.
Check the other options: nothing in the facts is about training or skills (A), market-wide effects are indirect (C), and reputation is a general result rather than the best match (D).

Answer: B. Her action best reflects using reasonable care and independent professional judgment.

Example 2

Essay-style: A portfolio manager buys shares for his personal account before executing a large client order in the same shares. He says the order is only a small part of the market. State whether he violated the Code of Ethics and justify your answer in two sentences.

Show the solution

Identify the conduct: he traded personally ahead of a client order.
Identify the direction of duty: the duty is owed to the client.
Match the component: the Code requires that the interests of clients are placed above personal interests.
Address his defence: the size of the order in the market does not remove the duty. The conduct puts his interest ahead of the client's.
State the related Standards briefly: it breaches Standard VI(B) Priority of Transactions and Standard III(A) Loyalty, Prudence and Care.

Answer: Yes, he violated the Code. The Code requires members to place client interests above their own personal interests, and trading ahead of a client order puts his own interest first whatever the order's market impact.

Exam tips

Learn the six components as short key phrases. Examiners reward the right idea, so precise wording helps you match the facts quickly.
Always name the direction of duty first. It narrows the Standard choices in seconds.
In essay sets, follow the command word: identify means name it, justify means give the reason. Do not write more than is asked.
Apply the Code and Standards as written, not as common practice in your market. If the law is looser, the Code still applies.
Read all four options before choosing. Wrong options often contain a half-true statement that omits the client's interest.

Code of Ethics and Preamble 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 Preamble: frequently asked questions

What are the six components of the CFA Code of Ethics?

They cover acting ethically with all parties, placing clients and the profession above personal interests, using independent professional judgment, practising and encouraging ethical practice that reflects credit on the profession, promoting the integrity of global capital markets, and maintaining and improving competence. Learn each as a short key phrase.

What is the purpose of the Preamble?

The Preamble explains why the Code exists. It stresses that trust in the investment profession is essential. It also links ethical conduct to the integrity and viability of global capital markets for the benefit of society.

How do I remember the CFA Code of Ethics?

Use the opening verbs of the six components in order: Act, Place, Use, Practice, Promote, Maintain. Then link each to a key phrase and to a direction of duty: clients, employers, the profession or the market.

How is the Code of Ethics tested at Level III?

It is tested through item sets and essay sets built on short case situations. You decide whether there is a violation, name the Standard and give a short justification. Understanding the Code helps you reason when the case is unfamiliar.