of Ethics Online Collection:1990
Code of Ethics and Standards of Professional Conduct
All members of the Association for Investment Management and Research, the Financial Analysts Federation, and the Institute of Chartered Financial Analysts and the holders of and candidates for the Chartered Financial Analyst designation are obligated to conduct their activities in accordance with the following Code of Ethics and Standards of Professional Conduct. Disciplinary sanctions may be imposed for violations of the Code and Standards.
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Code of Ethics and Standards of Professional Conduct
Standards of Practice Handbook
Experience has shown that the working investment professional can best understand and apply AIMR's Code of Ethics and Standards of Professional Conduct if they are accompanied by practical illustrations describing application of individual standards. The Standards of Practice Handbook was developed with this type of illustration in mind. The 6th edition of The Handbook can be obtained from AIMR. The 7th edition of the Standards of Practice Handbook is due out in late 1996.
Effective January 1, 1990
A financial analyst should conduct himself with integrity and dignity and act in an ethical manner in his dealings with the public, clients, customers, employers, employees, and fellow analysts.
A financial analyst should conduct himself and should encourage others to practice financial analysis in a professional and ethical manner that will reflect credit on himself and his profession.
A financial analyst should act with competence and should strive to maintain and improve his competence and that of others in the profession.
A financial analyst should use proper care and exercise independent professional judgment.
THE STANDARDS OF PROFESSIONAL CONDUCT
I. Obligation to Inform Employer of Code and Standards
The financial analyst shall inform his employer, through his direct supervisor, that the analyst is obligated to comply with the Code of Ethics and Standards of Professional Conduct and is subject to disciplinary sanctions for violations thereof. He shall deliver a copy of the Code and Standards to his employer if the employer does not have a copy.
II. Compliance with Governing Laws and Regulations and the Code and Standards
A. Required Knowledge and Compliance
The financial analyst shall maintain knowledge of and shall comply with all applicable laws, rules, and regulations of any government, governmental agency, and regulatory organization governing his professional, financial, or business activities, as well as with these Standards of Professional Conduct and the accompanying Code of Ethics.
B. Prohibition Against Assisting Legal and Ethical Violations
The financial analyst shall not knowingly participate in, or assist, any acts in violation of any applicable law, rule, or regulation of any government, governmental agency, or regulatory organization governing his professional, financial, or business activities, nor any act which would violate any provision of these Standards of Professional Conduct or the accompanying Code of Ethics.
C. Prohibition Against Use of Material Nonpublic Information
The financial analyst shall comply with all laws and regulations relating to the use and communication of material nonpublic information. The financial analyst's duty is generally defined as to not trade while in possession of, nor communicate, material nonpublic information in breach of a duty, or if the information is misappropriated.
Duties under the Standard include the following: (1) If the analyst acquires such information as a result of a special or confidential relationship with the issuer or others, he shall not communicate the information (other than within the relationship), or take investment action on the basis of such information, if it violates that relationship. (2) If the analyst is not in a special or confidential relationship with the issuer or others, he shall not communicate or act on material nonpublic information if he knows, or should have known, that such information (a) was disclosed to him, or would result, in a breach of a duty, or (b) was misappropriated.
If such a breach of duty exists, the analyst shall make reasonable efforts to achieve public dissemination of such information.
D. Responsibilities of Supervisors
A financial analyst with supervisory responsibility shall exercise reasonable supervision over those subordinate employees subject to his control, to prevent any violation by such persons of applicable statutes, regulations, or provisions of the Code of Ethics or Standards of Professional Conduct. In so doing the analyst is entitled to rely upon reasonable procedures established by his employer.
III. Research Reports, Investment Recommendations and Actions
A. Reasonable Basis and Representations
1. The financial analyst shall exercise diligence and thoroughness in making an investment recommendation to others or in taking an investment action for others.
2. The financial analyst shall have a reasonable and adequate basis for such recommendations and actions, supported by appropriate research and investigation.
3. The financial analyst shall make reasonable and diligent efforts to avoid any material misrepresentation in any research report or investment recommendation.
4. The financial analyst shall maintain appropriate records to support the reasonableness of such recommendations and actions.
B. Research Reports
1. The financial analyst shall use reasonable judgment as to the inclusion of relevant factors in research reports.
2. The financial analyst shall distinguish between facts and opinions in research reports.
3. The financial analyst shall indicate the basic characteristics of the investment involved when preparing for general public distribution a research report that is not directly related to a specific portfolio or client.
C. Portfolio Investment Recommendations and Actions
1. The financial analyst shall, when making an investment recommendation or taking an investment action for a specific portfolio or client, consider its appropriateness and suitability for such portfolio or client. In considering such matters, the financial analyst shall take into account (a) the needs and circumstances of the client, (b) the basic characteristics of the investment involved, and (c) the basic characteristics of the total portfolio. The financial analyst shall use reasonable judgment to determine the applicable relevant factors.
2. The financial analyst shall distinguish between facts and opinions in the presentation of investment recommendations.
3. The financial analyst shall disclose to clients and prospective clients the basic format and general principles of the investment processes by which securities are selected and portfolios are constructed and shall promptly disclose to clients any changes that might significantly affect those processes.
D. Prohibition Against Plagiarism
The financial analyst shall not, when presenting material to his employer, associates, customers, clients, or the general public, copy or use in substantially the same form material prepared by other persons without acknowledging its use and identifying the name of the author or publisher of such material. The analyst may, however, use without acknowledgment factual information published by recognized financial and statistical reporting services or similar sources.
E. Prohibition Against Misrepresentation of Services
The financial analyst shall not make any statements, orally or in writing, which misrepresent (1) the services that the analyst or his firm is capable of performing for the client, (2) the qualifications of such analyst or his firm, and/or (3) the expected performance of any investment.
1. The financial analyst shall not make, orally or in writing, explicitly or implicitly, any assurances about or guarantees of any investment or its return except communication of accurate information as to the terms of the investment instrument and the issuer's obligations under the instrument.
F. Performance Presentation Standards
1. The financial analyst shall not make any statements, orally or in writing, which misrepresent the investment performance that the analyst or his firm has accomplished or can reasonably be expected to achieve.
2. If an analyst communicates directly or indirectly individual or firm performance information to a client or prospective client, or in a manner intended to be received by a client or prospective client ("Performance Information"), the analyst shall make every reasonable effort to assure that such performance information is a fair, accurate and complete presentation of such performance.
3. The financial analyst shall inform his employer about the existence and content of the Association for Investment Management and Research's Performance Presentation Standards (See Appendix A), and this Standard III F, and shall encourage his employer to adopt and use the Performance Presentation Standards.
4. If Performance Information complies with the Performance Presentation Standards, the analyst shall be presumed to be in compliance with III F 2. above.
5. An analyst presenting Performance Information may use the following legend on the Performance Information presentation, but only if the analyst has made every reasonable effort to assure that such presentation is in compliance with the Performance Presentation Standards in all material respects:
This Report has been prepared and presented in compliance with the Performance Presentation Standards of the Association for Investment Management and Research.
This Standard shall take effect January 1, 1993.
G. Fair Dealing with Customers and Clients
The financial analyst shall act in a manner consistent with his obligation to deal fairly with all customers and clients when (1) disseminating investment recommendations, (2) disseminating material changes in prior investment advice, and (3) taking investment action.
The financial analyst shall conduct himself in such a manner that transactions for his customers, clients, and employer have priority over transactions in securities or other investments of which he is the beneficial owner, and so that transactions in securities or other investments in which he has such beneficial ownership do not operate adversely to their interests. If an analyst decides to make a recommendation about the purchase or sale of a security or other investment, he shall give his customers, clients, and employer adequate opportunity to act on this recommendation before acting on his own behalf.
For purposes of these Standards of Professional Conduct, a financial analyst is a "beneficial owner" if he directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in the securities or the investment.
The financial analyst, when making investment recommendations, or taking investment actions, shall disclose to his customers and clients any material conflict of interest relating to him and any material beneficial ownership of the securities or other investments involved that could reasonably be expected to impair his ability to render unbiased and objective advice.
The financial analyst shall disclose to his employer all matters that could reasonably be expected to interfere with his duty to the employer, or with his ability to render unbiased and objective advice.
The financial analyst shall also comply with all requirements as to disclosure of conflicts of interest imposed by law and by rules and regulations of organizations governing his activities and shall comply with any prohibitions on his activities if a conflict of interest exists.
A. Disclosure of Additional Compensation Arrangements
The financial analyst shall inform his customers, clients, and employer of compensation or other benefit arrangements in connection with his services to them which are in addition to compensation from them for such services.
B. Disclosure of Referral Fees
The financial analyst shall make appropriate disclosure to a prospective client or customer of any consideration paid or other benefit delivered to others for recommending his services to that prospective client or customer.
C. Duty to Employer
The financial analyst shall not undertake independent practice which could result in compensation or other benefit in competition with his employer unless he has received written consent from both his employer and the person for whom he undertakes independent employment.
VII. Relationships with Others
A. Preservation of Confidentiality
A financial analyst shall preserve the confidentiality of information communicated by the client concerning matters within the scope of the confidential relationship, unless the financial analyst receives information concerning illegal activities on the part of the client.
B. Maintenance of Independence and Objectivity
The financial analyst, in relationships and contacts with an issuer of securities, whether individually or as a member of a group, shall use particular care and good judgment to achieve and maintain independence and objectivity.
C. Fiduciary Duties
The financial analyst, in relationships with clients, shall use particular care in determining applicable fiduciary duty and shall comply with such duty as to those persons and interests to whom it is owed.
VIII. Use of Professional Designation
The qualified financial analyst may use, as applicable, the professional designation Member of the Association for Investment Management and Research, Member of the Financial Analysts Federation, and Member of the Institute of Chartered Financial Analysts, and is encouraged to do so, but only in a dignified and judicious manner. The use of the designations may be accompanied by an accurate explanation (1) of the requirements that have been met to obtain the designation, and (2) of the Association for Investment Management and Research, the Financial Analysts Federation, and the Institute of Chartered Financial Analysts, as applicable.
The Chartered Financial Analyst may use the professional designation Chartered Financial Analyst, or the abbreviation CFA, and is encouraged to do so, but only in a dignified and judicious manner. The use of the designation may be accompanied by an accurate explanation (1) of the requirements that have been met to obtain the designation, and (2) of the Association for Investment Management and Research, and the Institute of Chartered Financial Analysts.
The financial analyst shall not (1) commit a criminal act that upon conviction materially reflects adversely on his honesty, trustworthiness, or fitness as a financial analyst in other respects, or (2) engage in conduct involving dishonesty, fraud, deceit, or misrepresentation.
Masculine pronouns, used throughout the Code and Standards, as well as throughout the Handbook, to simplify sentence structure, shall apply to all persons, regardless of sex.
