A Guide to the Foundation of Professional Conduct
Business and financial markets flourish on a foundation of trust. For an investment manager, trust is paramount. Unethical actions can lead to market crises, economic damage, and job losses. Conversely, ethical behavior builds trust, which encourages broader participation in capital markets, fostering economic growth and opportunity.
The study of moral principles and beliefs about what is good, acceptable, or obligatory behavior. Ethical actions are those that conform to the expectations of society.
Includes:
Rules of conduct specified by a government. While laws often codify ethical actions, the two are not always the same.
Investment management is considered a profession because it is based on several key characteristics.
Based on a body of specialized knowledge and skill.
Committed to a high standard of service to others.
Members share and adhere to a common code of ethics.
The CFA Institute serves as the global community for investment professionals. Its Code of Ethics and Standards of Professional Conduct are principle-based rules that apply to all members and candidates in all of their professional activities. Adherence is mandatory, and violations can lead to disciplinary action.
Even well-intentioned professionals can face challenges that lead to unethical behavior.
People tend to be overconfident and overestimate the morality of their own behavior. This can lead them to believe they are acting ethically when they are not.
These are external factors that shape our behavior, often motivating individuals to act in their short-term self-interest. Common influences in the investment industry include:
While laws and ethics often overlap, they are not identical. Ethical conduct goes beyond simply following the law.
Using a structured framework can help investment professionals navigate complex ethical situations and make better decisions.
Identify the relevant facts, the ethical principles at stake, the duties owed to stakeholders, and any conflicts of interest.
Consider the situational influences, seek additional guidance, and evaluate alternative courses of action.
Make a decision and take action based on your analysis.
Reflect on the outcome. Was it what you expected? Why or why not? Learn from the experience to inform future decisions.
Ethical behavior is not just about following rules—it's about building and maintaining the trust that enables financial markets to function effectively and serve society's needs.