Standards I(C), I(D), And I(E)

• I(C) Misrepresentation. Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

Guidance

Trust is a foundation in the investment profession. Do not make any misrepresentations or give false impressions. This includes oral, electronic, and social media communications.

Misrepresentations include guaranteeing investment performance and plagiarism. Plagiarism encompasses using someone else’s work (reports, forecasts, models, ideas, charts, graphs, and spreadsheet models) without giving them credit. Knowingly omitting information that could affect an investment decision or performance evaluation is considered misrepresentation.

Models and analysis developed by others at a member’s firm are the property of the firm and can be used without attribution. A report written by another analyst employed by the firm cannot be released as another analyst’s work.

Recommended Procedures for Compliance

A good way to avoid misrepresentation is for firms to provide employees who deal with clients or prospects a written list of the firm’s available services and a description of the firm’s qualifications. Employee qualifications should be accurately presented as well. To avoid plagiarism, maintain records of all materials used to generate reports or other firm products and properly cite sources (quotes and summaries) in work products.

Information from recognized financial and statistical reporting services need not be cited.

Members should encourage their firms to establish procedures for verifying marketing claims of third parties whose information the firm provides to clients.

Application of Standard I(C) Misrepresentation Example 1:

A member makes an error in preparing marketing materials and misstates the amount of assets his firm has under management.

Comment:

The member must attempt to stop distribution of the erroneous material as soon as the error is known. Simply making the error unintentionally is not a violation, but continuing to distribute material known to contain a significant misstatement of fact would be.

Example 2:

The marketing department states in sales literature that an analyst has received an MBA degree, but he has not. The analyst and other members of the firm have distributed this document for years.

Comment:

The analyst has violated the Standards, as he should have known of this misrepresentation after having distributed and used the materials over a period of years.

Example 3:

A member describes an interest only collateralized mortgage obligation as guaranteed by the U.S. government because it is a claim against the cash flows of a pool of guaranteed mortgages, although the payment stream and the market value of the security are not guaranteed.

Comment:

This is a violation because of the misrepresentation.

Example 4:

A member describes a bank CD as “guaranteed.”

Comment:

This is not a violation as long as the limits of the guarantee provided by the Federal Deposit Insurance Corporation are not exceeded and the nature of the guarantee is clearly explained to clients.

Example 5:

A member uses definitions he found online for such terms as variance and coefficient of variation in preparing marketing material.

Comment:

Even though these are standard terms, using the work of others word for word is plagiarism.

Example 6:

A candidate reads about a research paper in a financial publication and includes the information in a research report, citing the original research report but not the financial publication.

Comment:

To the extent that the candidate used information and interpretation from the financial publication without citing it, the candidate is in violation of the Standard. The candidate should either obtain the report and reference it directly or, if he relies solely on the financial publication, should cite both sources.

• I(D) Misconduct. Members and Candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.

Guidance CFA Institute discourages unethical behavior in all aspects of members’ and candidates’ lives. Do not abuse CFA Institute’s Professional Conduct Program by seeking enforcement of this Standard to settle personal, political, or other disputes that are not related to professional ethics.

Recommended Procedures for Compliance Firms are encouraged to adopt these policies and procedures:

• Develop and adopt a code of ethics and make clear that unethical behavior will not be tolerated. Give employees a list of potential violations and sanctions, including dismissal.
• Check references of potential employees.

Application of Standard I(D) Misconduct Example 1:

A member intentionally includes a receipt that is not in his expenses for a company trip.

Comment:

Because this act involves deceit and fraud and reflects on the member’s integrity and honesty, it is a violation.

Example 2:

A member tells a client that he can get her a good deal on a car through his father in- law, but instead gets her a poor deal and accepts part of the commission on the car purchase.

Comment:

The member has been dishonest and misrepresented the facts of the situation and has, therefore, violated the Standard.

• I(E) Competence. Members and Candidates must act with and maintain the competence necessary to fulfill their professional responsibilities.

Guidance Competence means having and maintaining the abilities, skills, and knowledge needed to perform a member or candidate’s professional responsibilities. The nature of those abilities, skills, and knowledge depends on the specific responsibilities a member or candidate assumes. Although competence is necessary to succeed as a financial analyst, negative outcomes do not necessarily imply a lack of competence.

If a member or candidate accepts a new or unfamiliar professional role, it is the member or candidate’s responsibility to develop the abilities, skills, and knowledge that the new role calls for.

This Standard recommends, but does not require, that members or candidates participate in continuing education.

Recommended Procedures for Compliance

• Participate in continuing education, professional development, or employer provided training. Acquire professional designations. Attend relevant seminars or conferences.
• Participate in professional organizations. Engage in informal self study.