Revisions to the CFA Institute Code of Ethics and Standards of Professional Conduct
For CFA Institute members and candidates, the new year brings new responsibilities under the CFA Institute Code of Ethics and Standards of Professional Conduct. In 2023, the CFA Institute Board of Governors voted to revise the Standards of Professional Conduct in three areas. The changes became effective 1 January 2024. This resulted in the inclusion of one new standard and revisions to two existing standards.
1. Act with and Maintain Competence
Members and Candidates must act with and maintain the competence necessary to fulfill their professional responsibilities.
Given the diverse range of professional services engaged in by members and candidates, the knowledge, skills, and abilities necessary to successfully fulfill their role will vary according to the nature of their professional duties. Over time, a member’s and candidate’s role may expand, requiring new or different knowledge, skills, and abilities. Members and candidates will develop and refine their skills and abilities throughout their professional careers. Requiring members and candidates to act with and maintain appropriate levels of competence will help ensure they provide a high standard of professional service for their clients and employers.
The Code of Ethics requires members and candidates to “act with integrity, competence, and diligence” and to “maintain and improve their professional competence and strive to improve the competence of other investment professionals.” This new standard is consistent with and directly supports the requirements of the Code of Ethics. Standard I(E) makes these requirements of the Code of Ethics more explicit and emphasizes the need for members and candidates to continuously maintain or improve the competence required by their professional position.
The skills and abilities necessary for members and candidates to successfully fulfill their role vary according to the nature and complexity of their professional duties. As a result, there will be different criteria for competence for different members. An examination of the facts and circumstances of each member or candidate will dictate their expected conduct under this standard.
Finally, Standard I(E) does not require members and candidates to engage in any specific program of professional development or continuing education. There are a variety of ways members and candidates can demonstrate and maintain competence when engaging in their professional responsibilities.
2. Disclosure of Nature of Services and Costs to Client
V. INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS
B. Communication with Clients and Prospective Clients
Members and Candidates must:
1. Disclose to clients and prospective clients the nature of the services provided, along with information about the costs to the client associated with those services.
A fundamental goal of the Code and Standards is to protect client interests and allow them to make fully informed decisions about their investments and financial well-being. Providing clients with information about the nature of the services they can expect from investment professionals and the financial impact they can expect from those services is critical to achieving this goal. The disclosures required by this new standard will permit clients to make informed decisions as to whether to engage with the member or candidate and their firm.
The standard on Communication with Clients and Prospective Clients has always required members and candidates to disclose the basic format and general principles of the investment processes they use to analyze investments, select securities, and construct portfolios and to promptly disclose any material changes to these processes. The associated financial impact is an important part of the investment process, but until now, the standards did not explicitly address this as part of this disclosure. The revision to Standard V(B) fills this gap.
3. Avoid or Disclose Conflicts
VI. CONFLICTS OF INTEREST
A. 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 and interfere with respective duties to their clients, prospective clients, and employer. Members and Candidates must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively.
While Standard VI(A) historically required members and candidates to disclose conflicts, the language of the standard made no mention of avoiding conflicts. Nevertheless, the guidance for the Conflicts of Interest standard has long stated that best practice is to avoid conflicts or the appearance of conflicts. Including the option to avoid versus simply disclosing conflicts in the language of the standard emphasizes that members and candidates should avoid conflicts of interest whenever reasonably possible. While avoiding conflicts altogether is preferred, often in the investment industry it may not be reasonable for members and candidates to avoid a conflict or the perception of a conflict. When this is the case, Standard VI(A) continues to require clear and complete disclosure of the conflict.
All CFA Institute members and CFA and CIPM Program candidates must now understand and comply with these changes along with all the other provisions of the Code and Standards.
The new Code and Standards are available on the CFA Institute website along with updated guidance and examples that fully explain these new requirements. In addition, CFA Institute hosted a webinar that provides an overview of the revisions to the Code and Standards, and you can access the accompanying slide deck and related Q&As.
If you have any questions regarding the new standards or about the interpretation and application of the Code and Standards, you can address them to the CFA Institute Ethics Helpdesk at [email protected].
All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.
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