Notesale: Turn your study into money

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Concepts

Description

Ethics

Ethics and Trust in the Investment Profession
Ethics : a set of shared beliefs about what is good/acceptale behaviour, and what is bad/unacceptable behaviour

Code of ethics

Code of ethics : written set of moral principles that can guide behaviour by dexcribing what is considered acceptable behaviour
Profession : group of people with specialised skills and knowledge who serve others and agree to be have in accordance with a code of ethics
Role of code of ethics in defining a profession : a way to communicate to the public that its members will use their knowledfe and skills to serve their clients in an honest and ethical
manner
Code of ethics for members of CFA Institute :
- Act with integrity, competence, dilligence, respect and in ethical manner with the public, clients, employees, colleagues in the investment profession, and other participants in the
global capital markets
- Place the integrity of the investment professional and the interest of clients above their own personal interests
- Use reasonable care and exercise independent professional judgement when conducting investment analysis, making investment recommendations, taking investment actions, and
engaging in other professional activities
- Practice and encourage other to practice in a professional and ethical manner
- Promote the integrity and viability of the global capital markets for the benefit of society
- Maintain and improve their professional competence and other investment professionals

Challenge to ethical behaviour

- Individuals tend to overrate the ethical quality of their behaviour on a relative basis, and overemphasize the importance of their own personal traits in determining the ethical quality of
their behaviour
- Situational influences (loyal to employer, supervisor, organisation, etc
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Investment advice and management are intangible products → trust
in investment professionals is very important
Consequence of ethical failure :
- Damage client wealth ; impede the success of investment firms and investment professionals
- Lack of trust in financial advisors → reduce funds entrusted to the financial advisors → ↑ cost of raising capital for
- Misallocation of capital → reduce the growth of the economy and the well-being of its people
Not all unethical actions are illegal, and vice versa
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The framework is as follows:
- Identify : relevant facts, affected stakeholders and duties owed, ethical principles and conflict of interest among them
- Consider : Situational influences, additional guidance, alternative actions
- Decide and act
- Reflect : was the outcome as anticipated? why or why not?

Concepts

Description

1
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Knowledge of the law : understand and comply with all applicable laws, rules and regulations (must comply with the more strict law, rule and regulation)
2
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Client's gifts are acceptable, but must be disclosed to employer)
3
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Violations include :
- Do not cite the source of 3rd party researches, except from recognised financial and statistical reporting services
- Guarantee specific return on securities that have no explicit guarantee from government body or financial situation
- Select valuation service because it has the highest value on untraded security holding
- Select irrelevant performance benchmark
- Present performance data / attribution analysis that omits accounts or relevant variables
- Offer false / misleading info about capability of analyst or firm
- Using misleading 3rd party marketing materials
4
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Integrity of Capital market

1
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Market manipulation : Must not engage in practices that distort prices / artificially inflate trading volume with the intent to mislead market participants

3
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Loyalty, prudence and care : have a duty of loyalty to clients, must act with reasonable care and exercise prudnet judgement
2
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- Different service levels are acceptable
- Should not take advantage of their position in the industry to disadvantage clients
3
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This information must be reassessed and updated regularly
+ Determine that an investment is suitable to the client's financial situation, and consistent with the written objectives, mandates and constraints prior to making any investment
recommendation / taking investment action
+ Judge the suitability of investments in context of the client's total portfolio
- In managing a portfolio : only make recommendations / actions that are consistent with the stated objectives and constraints of the portfolio
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Performance presentation : must make reasonable efforst to ensure the investment performance communicated to client is fair, accurate and complete
5
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Duties to employers

1
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Not deprive their employer of the advantage of their skills, ability, divulge confidential information
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2
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Responsibilities of supervisors : ensure anyone under supervision comply with applicable laws, rules, regulations and the Code of Standards

5
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Diligence and reasonable basis :
- Exercise diligence, independence, thoroughness in investment analysis, recommendation and actions
- Have reasonable, adequate, well-supported basis for any investment analysis, recommendation and actions
- List of factors need to be considered include:
+ Global and national econ conditions
+ Firm's financial result, operating history

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