CFA Level 1 - Ethics, Professional Standards, and GIPS
1. Define the term "stakeholders" in the context of business decisions.
Stakeholders encompass individuals or groups who could be affected, either
directly or indirectly, by a decision. They possess a vested interest, or "a stake," in
the outcome of that decision. This broad definition includes a wide range of parties
beyond just shareholders, such as employees, customers, suppliers, the community,
and regulatory bodies. Recognizing and understanding the diverse perspectives of
stakeholders is crucial for ethical and effective decision-making.
2. What is "ethics," and what role does it play in guiding behavior? Ethics
refers to a set of moral principles and established rules of conduct that provide a
framework and direction for our behavior. It acts as an internal compass, guiding
individuals and organizations in discerning right from wrong and making choices
that align with societal values and professional standards. Ethics is not merely
about adhering to laws but also about upholding principles of fairness, integrity,
and responsibility.
3. Differentiate between "moral principles" and "ethical principles." Do these
principles apply solely to oneself or to others as well? Moral and ethical
principles are often used interchangeably and represent beliefs about what is
considered good, acceptable, obligatory, and conversely, what is bad,
unacceptable, or forbidden. These principles are not limited to individual conduct;
they extend to our interactions with others and guide our responsibilities within a
broader social and professional context. Therefore, moral/ethical principles pertain
to both oneself and others.
4. Describe a "code of ethics" and its purpose within a group or organization.
A code of ethics is a formal, written document that outlines the core ethical
principles and rules of conduct that a group or organization believes are obligatory
and forbidden. It serves as a codified set of beliefs, providing a clear framework
for expected behavior and promoting a culture of integrity. This document helps to
normalize practitioner behavior and establish a shared understanding of ethical
expectations among members.
5. Explain "standards of conduct" and how they relate to a code of ethics.
Standards of conduct are specific benchmarks that define minimally acceptable
behavior within a profession or organization. They serve to clarify the broader
principles outlined in a code of ethics by providing concrete examples and
practical guidance on how those principles should be applied in various situations.
,Think of standards of conduct as translating the abstract ideals of a code of ethics
into actionable guidelines.
6. What defines a "profession," and what are the key characteristics that
distinguish it? A profession is characterized by individuals possessing specialized
skills and knowledge who serve others and commit to behaving in accordance with
a specific code of ethics. Key characteristics that distinguish a profession include
an emphasis on an ethical approach, a commitment to providing good service, and
empathy for the client. Professionals are expected to prioritize the interests of those
they serve and uphold the integrity of their field.
7. Identify and explain the key emphases of most professions. Most professions
emphasize:
Ethical Approach: A fundamental commitment to acting with integrity,
honesty, and fairness in all professional dealings.
Importance of Good Service: A dedication to providing high-quality
service that meets the needs and expectations of clients or the public.
Empathy with the Client: Understanding and responding to the needs and
perspectives of those being served with care and consideration.
8. What are the primary distinctions between professions and tradespeople?
Several factors separate professions from tradespeople:
Licensed Status and Technical Standards: Professions often require
specific licenses, certifications, or adherence to rigorous technical standards
to ensure competence and accountability.
Serving Society: Professionals typically have a broader responsibility to
serve the interests of society as a whole, often going beyond individual
transactions.
9. Outline the mechanisms through which professions establish and maintain
public trust. Professions establish trust through a multifaceted approach:
1. Normalize Practitioner Behavior: Establishing clear codes and standards
that promote consistent and ethical conduct.
2. Provide a Service to Society: Demonstrating a commitment to the well-
being and progress of the broader community.
3. Client Focused: Prioritizing the needs and interests of clients in all
professional activities.
, 4. High Entry Standards: Implementing rigorous educational and
examination requirements to ensure competence.
5. Possess Body of Expert Knowledge: Maintaining and advancing a
specialized body of knowledge relevant to the profession.
6. Encourage and Facilitate Continuing Education: Promoting ongoing
learning and development to maintain professional standards.
7. Monitor Professional Conduct: Establishing mechanisms for oversight and
enforcement of ethical and professional standards.
8. Collegial: Fostering a culture of collaboration and mutual support among
practitioners.
9. Recognized Oversight Bodies: Having established organizations
responsible for setting standards and ensuring accountability.
10.Encourage Engagement of Members: Promoting active participation and
contribution from members to uphold professional values.
10. Define "fiduciary duty" or "fiduciary standard" and explain its
significance. A fiduciary duty or standard represents an obligation to deliver a high
standard of care and to act in the best interests of another party. It signifies a
relationship of trust and confidence where one party (the fiduciary) is ethically
bound to prioritize the needs and well-being of the other party (the beneficiary).
This standard is particularly significant in professions like investment
management, where clients entrust professionals with their financial futures.
11. What is "practice analysis" and its relevance to professional standards?
Practice analysis involves the ongoing process of updating the Global Body of
Investment Knowledge (GBIK) and the Candidate Body of Knowledge (CBOK).
This ensures that professional standards and the curriculum for aspiring
professionals remain current, relevant, and reflect the evolving knowledge and
skills required in the field. It underpins the credibility and competence of the
profession.
12. Explain "situational influences" and their impact on ethical decision-
making. Situational influences are external factors and environmental or cultural
elements that can significantly shape our thinking, decision-making processes, and
ultimately, our behavior. These factors can sometimes override individual moral
principles and lead individuals to act unethically, even if they generally hold strong
ethical beliefs. Understanding these influences is crucial for mitigating their
negative impact.
, 13. According to the text, what is most likely to cause individuals to act
unethically? The text suggests that external factors, encompassing environmental
or cultural elements (situational influences), are most likely to make people act
unethically. This highlights the importance of context and the power of external
pressures in shaping ethical conduct.
14. Outline the steps involved in a typical "ethical decision-making
framework." A common ethical decision-making framework involves the
following steps:
1. Identify: Clearly define the facts of the situation, identify the relevant
stakeholders, understand the duties involved, and recognize any potential
conflicts of interest.
2. Consider: Analyze the potential influences on the decision, explore various
possible actions, and consider any relevant ethical guidance or principles.
3. Reflect: Evaluate the anticipated outcomes of the chosen action and
consider whether the result aligns with ethical principles and the intended
goals.
15. What is the "Standards of Practice Handbook" (Handbook), and what
purpose does it serve? The Standards of Practice Handbook (Handbook) is a
resource that provides practical guidance to professionals who grapple with real
ethical dilemmas within the investment profession. It serves as a bridge between
ethical theory and practical application, helping individuals navigate complex
situations and make ethically sound decisions in their day-to-day work.
16. What is the primary focus of The Handbook in addressing ethical issues?
The Handbook primarily addresses the professional intersection where ethical
theory meets practical application. It focuses on how ethics transitions from
abstract principles to concrete actions and decisions within the investment
profession.
17. Who is the intended audience for The Handbook? The Handbook is
intended for a broad global audience, including:
CFA Institute members.
Supervisors and direct/indirect reports in determining responsibilities to each
other, clients, and the market.
CFA Institute candidates.
1. Define the term "stakeholders" in the context of business decisions.
Stakeholders encompass individuals or groups who could be affected, either
directly or indirectly, by a decision. They possess a vested interest, or "a stake," in
the outcome of that decision. This broad definition includes a wide range of parties
beyond just shareholders, such as employees, customers, suppliers, the community,
and regulatory bodies. Recognizing and understanding the diverse perspectives of
stakeholders is crucial for ethical and effective decision-making.
2. What is "ethics," and what role does it play in guiding behavior? Ethics
refers to a set of moral principles and established rules of conduct that provide a
framework and direction for our behavior. It acts as an internal compass, guiding
individuals and organizations in discerning right from wrong and making choices
that align with societal values and professional standards. Ethics is not merely
about adhering to laws but also about upholding principles of fairness, integrity,
and responsibility.
3. Differentiate between "moral principles" and "ethical principles." Do these
principles apply solely to oneself or to others as well? Moral and ethical
principles are often used interchangeably and represent beliefs about what is
considered good, acceptable, obligatory, and conversely, what is bad,
unacceptable, or forbidden. These principles are not limited to individual conduct;
they extend to our interactions with others and guide our responsibilities within a
broader social and professional context. Therefore, moral/ethical principles pertain
to both oneself and others.
4. Describe a "code of ethics" and its purpose within a group or organization.
A code of ethics is a formal, written document that outlines the core ethical
principles and rules of conduct that a group or organization believes are obligatory
and forbidden. It serves as a codified set of beliefs, providing a clear framework
for expected behavior and promoting a culture of integrity. This document helps to
normalize practitioner behavior and establish a shared understanding of ethical
expectations among members.
5. Explain "standards of conduct" and how they relate to a code of ethics.
Standards of conduct are specific benchmarks that define minimally acceptable
behavior within a profession or organization. They serve to clarify the broader
principles outlined in a code of ethics by providing concrete examples and
practical guidance on how those principles should be applied in various situations.
,Think of standards of conduct as translating the abstract ideals of a code of ethics
into actionable guidelines.
6. What defines a "profession," and what are the key characteristics that
distinguish it? A profession is characterized by individuals possessing specialized
skills and knowledge who serve others and commit to behaving in accordance with
a specific code of ethics. Key characteristics that distinguish a profession include
an emphasis on an ethical approach, a commitment to providing good service, and
empathy for the client. Professionals are expected to prioritize the interests of those
they serve and uphold the integrity of their field.
7. Identify and explain the key emphases of most professions. Most professions
emphasize:
Ethical Approach: A fundamental commitment to acting with integrity,
honesty, and fairness in all professional dealings.
Importance of Good Service: A dedication to providing high-quality
service that meets the needs and expectations of clients or the public.
Empathy with the Client: Understanding and responding to the needs and
perspectives of those being served with care and consideration.
8. What are the primary distinctions between professions and tradespeople?
Several factors separate professions from tradespeople:
Licensed Status and Technical Standards: Professions often require
specific licenses, certifications, or adherence to rigorous technical standards
to ensure competence and accountability.
Serving Society: Professionals typically have a broader responsibility to
serve the interests of society as a whole, often going beyond individual
transactions.
9. Outline the mechanisms through which professions establish and maintain
public trust. Professions establish trust through a multifaceted approach:
1. Normalize Practitioner Behavior: Establishing clear codes and standards
that promote consistent and ethical conduct.
2. Provide a Service to Society: Demonstrating a commitment to the well-
being and progress of the broader community.
3. Client Focused: Prioritizing the needs and interests of clients in all
professional activities.
, 4. High Entry Standards: Implementing rigorous educational and
examination requirements to ensure competence.
5. Possess Body of Expert Knowledge: Maintaining and advancing a
specialized body of knowledge relevant to the profession.
6. Encourage and Facilitate Continuing Education: Promoting ongoing
learning and development to maintain professional standards.
7. Monitor Professional Conduct: Establishing mechanisms for oversight and
enforcement of ethical and professional standards.
8. Collegial: Fostering a culture of collaboration and mutual support among
practitioners.
9. Recognized Oversight Bodies: Having established organizations
responsible for setting standards and ensuring accountability.
10.Encourage Engagement of Members: Promoting active participation and
contribution from members to uphold professional values.
10. Define "fiduciary duty" or "fiduciary standard" and explain its
significance. A fiduciary duty or standard represents an obligation to deliver a high
standard of care and to act in the best interests of another party. It signifies a
relationship of trust and confidence where one party (the fiduciary) is ethically
bound to prioritize the needs and well-being of the other party (the beneficiary).
This standard is particularly significant in professions like investment
management, where clients entrust professionals with their financial futures.
11. What is "practice analysis" and its relevance to professional standards?
Practice analysis involves the ongoing process of updating the Global Body of
Investment Knowledge (GBIK) and the Candidate Body of Knowledge (CBOK).
This ensures that professional standards and the curriculum for aspiring
professionals remain current, relevant, and reflect the evolving knowledge and
skills required in the field. It underpins the credibility and competence of the
profession.
12. Explain "situational influences" and their impact on ethical decision-
making. Situational influences are external factors and environmental or cultural
elements that can significantly shape our thinking, decision-making processes, and
ultimately, our behavior. These factors can sometimes override individual moral
principles and lead individuals to act unethically, even if they generally hold strong
ethical beliefs. Understanding these influences is crucial for mitigating their
negative impact.
, 13. According to the text, what is most likely to cause individuals to act
unethically? The text suggests that external factors, encompassing environmental
or cultural elements (situational influences), are most likely to make people act
unethically. This highlights the importance of context and the power of external
pressures in shaping ethical conduct.
14. Outline the steps involved in a typical "ethical decision-making
framework." A common ethical decision-making framework involves the
following steps:
1. Identify: Clearly define the facts of the situation, identify the relevant
stakeholders, understand the duties involved, and recognize any potential
conflicts of interest.
2. Consider: Analyze the potential influences on the decision, explore various
possible actions, and consider any relevant ethical guidance or principles.
3. Reflect: Evaluate the anticipated outcomes of the chosen action and
consider whether the result aligns with ethical principles and the intended
goals.
15. What is the "Standards of Practice Handbook" (Handbook), and what
purpose does it serve? The Standards of Practice Handbook (Handbook) is a
resource that provides practical guidance to professionals who grapple with real
ethical dilemmas within the investment profession. It serves as a bridge between
ethical theory and practical application, helping individuals navigate complex
situations and make ethically sound decisions in their day-to-day work.
16. What is the primary focus of The Handbook in addressing ethical issues?
The Handbook primarily addresses the professional intersection where ethical
theory meets practical application. It focuses on how ethics transitions from
abstract principles to concrete actions and decisions within the investment
profession.
17. Who is the intended audience for The Handbook? The Handbook is
intended for a broad global audience, including:
CFA Institute members.
Supervisors and direct/indirect reports in determining responsibilities to each
other, clients, and the market.
CFA Institute candidates.
