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2020 Curriculum CFA Program Level III Ethical and Professional Standards

Professionalism in the Investment Industry

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Introduction

The readings covering ethics and professional standards demonstrate that ethical behavior is central to creating trust. Professional behavior is equally important. Professions help maintain trust by establishing codes and setting standards that establish a framework for ethical behavior and technical competence. Professions also set wider goals of gaining and maintaining the trust of society as a whole. In this regard, professions have a sense of purpose that society values.

This reading explains attributes of professions and establishes what is expected of an investment professional. Professions are growing in size and number, partly as a result of government and regulator encouragement and requirement, but also owing to demand from clients. Practitioners in some new areas of expertise are also choosing to serve clients within the framework of a profession to protect standards and gain public trust. The concept of professionalism is based on cultural norms, and interpretation of these norms varies by region and country. Such variation is a challenge to defining professionalism globally, but some universal aspects are common to most professions.

Section 2 of this reading describes professions in general and how they establish trust. Section 3 describes professionalism in investment management. Section 4 addresses expectations of investment professionals, and Section 5 provides a high-level review of the framework for ethical decision-making. The reading concludes with Section 6, a summary of challenges for investment professionals. A listing of key points in Section 7 concludes the reading. 

Learning Outcomes

The member should be able to:

  • describe how professions establish trust;
  • explain professionalism in investment management;

  • describe expectations of investment professionals;

  • describe a framework for ethical decision-making.

Summary

  • A profession is an occupational group that has specific education, expert knowledge, and a framework of practice and behavior that underpins community trust, respect, and recognition.

  • The requirement to uphold high ethical standards is one clear difference between professions and craft guilds or trade bodies.

  • A primary goal of professions is to establish trust among clients and among society in general.

  • Common characteristics of professions include normalization of practitioner behavior, service to society, client focus, high entry standards, a body of expert knowledge, encouragement and facilitation of continuing education, monitoring of professional conduct, collegiality, recognized overseeing bodies, and encouragement of member engagement.

  • The investment profession has become increasingly global, driven by the opening of capital markets, coordination of regulation across borders, and the emergence of technology.

  • Investment professionals are trusted to draw on a body of formal knowledge and apply that knowledge with care and judgement. In comparison to clients, investment professionals are also expected to have superior financial expertise, technical knowledge, and knowledge of the applicable laws and regulations.

  • As a professional body, CFA Institute gathers knowledge from practicing investment professionals, develops high quality curricula, conducts rigorous examinations, contributes to new research in finance, and ensures practitioner involvement in developing its codes and values.

  • Legal standards are often rule based. Ethical conduct goes beyond legal standards, balancing self-interest with the direct and indirect consequences of behavior on others.

  • Investment professionals are likely to encounter dilemmas, including those with ethical implications. Professionals should consider carefully how to determine the facts of the issue and assess the implications.

  • A framework for ethical decision making can help people look at and evaluate a decision from different perspectives, enabling them to identify important issues, make wise decisions, and limit unintended consequences.

  • Regulation has helped raise professional standards by making them a requirement for practice, although sometimes at the expense of autonomy and flexibility.

  • Perhaps the greatest challenge for the investment management profession comes from technology. Rapid advances in computing power, data storage and internet connectivity are changing the definition of professional expertise and how it is applied to serve investors. 

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