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Reading 1CFA L1 EthicsFull chapter

Code of Ethics — six principles

In this chapter: Acting with integrity, competence, diligence · Placing client interests first · Promoting market integrity

~3 min readLayer 4 · Professional CertificationsFree

CFA Code of Ethics is six paraphrased principles. Memorise these; they are the foundation under everything else. Unlike the Standards (which are specific rules), the Code states broad principles that guide professional behaviour.

Foundation

The six Code principles: 1. Act with integrity, competence, diligence, respect, and ethically. 2. Place integrity of investment profession + clients' interests above personal interests. 3. Use reasonable care; exercise independent professional judgement. 4. Practise and encourage others to practise in professional/ethical manner. 5. Promote integrity and viability of global capital markets. 6. Maintain and improve professional competence. Notice progressive widening: personal conduct → client interest → professional judgement → peer behaviour → market integrity → lifelong learning.

Deep Dive

Why principles matter beyond Standards: Standards address specific situations; Code provides framework when Standards don't cover edge case. CFA Institute can investigate violations of Code OR Standards. Sanctions: private censure → public censure → suspension → revocation of charter. Key nuance: even legal action can be ethics violation. Code I(D) Misconduct says any conduct that compromises trust violates — regardless of legality. For the exam: treat Code as foundation, not memorisation. Most questions reference specific Standards; Code provides interpretive lens.

Advanced

Practitioner insight: ethics is most useful when there's no clear rule. The question becomes "would I be comfortable if this conversation were recorded?" In digital age, this is the practical floor. Common ethical pressures: revenue targets, sales incentives, peer pressure, time pressure. Code provides anchor when these compete with right action. For CFA charterholders: annual ethics certification + adherence to Code. Even after passing exam, lifetime obligation.

Regulatory references
  • CFA Institute Standards of Practice Handbook
  • SEBI Research Analyst Regulations 2014
  • AMFI Code of Conduct
Common mistakes & pitfalls
  • Treating Code as memorisation rather than interpretive framework.
  • Ignoring ethics violations as "minor" when no Standard covers exactly.
  • Not recognising that legality ≠ ethics.

Frequently asked

How is Code different from Standards?
Code = 6 broad principles; Standards = 7 specific rule sets. Code provides interpretation when Standards don't cover. Both must be followed.
Are CFA Code violations career-ending?
Range from private censure to charter revocation. Material violations + negligence: serious consequences. Minor + good-faith: often warning + remediation.

Practice questions

Click each question to reveal the answer and explanation.

Q 1
CFA Code of Ethics has how many principles?
  1. (a)4
  2. (b)6
  3. (c)7
  4. (d)10
Correct: (b) 6
6 principles. Memorise them. They form the foundation of CFA professional ethics.
Q 2
Which is NOT in the Code of Ethics?
  1. (a)Act with integrity
  2. (b)Place clients first
  3. (c)Maximize commission earnings
  4. (d)Maintain professional competence
Correct: (c) Maximize commission earnings
Maximizing commissions contradicts Code Principle 2 (place clients first). Other options are direct Code principles.
Q 3
Code violations can result in:
  1. (a)No consequences
  2. (b)Suspension or revocation of CFA charter
  3. (c)Only fines
  4. (d)Mandatory retraining only
Correct: (b) Suspension or revocation of CFA charter
CFA Institute can suspend or revoke charter for violations. Range from private censure to revocation depending on severity.
Q 4
Code Principle 5 emphasises:
  1. (a)Personal benefit
  2. (b)Market integrity and viability
  3. (c)Family relationships
  4. (d)Office hours
Correct: (b) Market integrity and viability
Principle 5: promote integrity and viability of global capital markets. Recognises responsibility beyond individual clients.
Q 5
A CFA charterholder must comply with:
  1. (a)Only Standards, not Code
  2. (b)Both Code and Standards plus annual certification
  3. (c)Code only
  4. (d)Neither — voluntary
Correct: (b) Both Code and Standards plus annual certification
Charterholders comply with both Code and Standards + annual ethics certification. Lifetime obligation.
Educational purposes only. The numbers, returns, and examples used in this lesson are illustrative. Past performance does not guarantee future results. Mutual fund and securities investments are subject to market risks. This lesson is not investment advice; for advice tailored to your circumstances, consult a SEBI-registered Investment Adviser. Read our full disclaimer.