Ethical and Professional Standards · Reading 101
Responsibilities as a CFA Institute Member
CFA Level I · Ethical and Professional Standards · Reading 101: Guidance for Standard VII: Responsibilities as a CFA Institute Member or CFA Candidate · about 25 min
What you'll learn
- LOS 101.a Apply Standard VII (Conduct as Participants in CFA Institute Programs; Reference to CFA Institute, the CFA Designation, and the CFA Program) to situations involving members and candidates.
- LOS 101.b Recommend practices that help prevent violations of Standards VII(A) and VII(B).
- LOS 101.c Identify conduct and statements that conform to Standard VII and those that violate it.
Module 101.1
Guidance for Standards VII(A) and VII(B)
This reading covers Standard VII, the responsibilities of CFA Institute members and CFA candidates: VII(A) governs conduct as participants in CFA Institute programs, and VII(B) governs how members and candidates refer to CFA Institute, the designation and the CFA Program. A candidate must be able to apply both parts to a fact pattern, recommend practices that prevent violations, and tell conduct that conforms from conduct that violates.
LOS 101.a — Applying Standard VII to members and candidates
Standard VII protects the value of CFA Institute programs and of the CFA designation. It has two parts.
Standard VII(A) Conduct as Participants in CFA Institute Programs
Members and candidates must not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation or the integrity, validity, or security of CFA Institute programs.
Conduct covered by VII(A) includes:
- Giving or receiving assistance (cheating) on any CFA Institute exam, or offering to do so (for example, offering someone an advance look at exam questions, even if the offer is refused). Exam convention: cheating on any exam, not only a CFA Institute exam, is treated as VII(A) conduct. Current practice: Standard VII(A) covers conduct that affects CFA Institute, the CFA designation and CFA Institute programs, so cheating on an unrelated exam falls outside it. Such cheating is a Standard I(D) Misconduct matter only when that exam is part of the member's or candidate's professional activities.
- Violating the rules and policies of the CFA Program. A candidate who breaks any exam policy (for example, the rules on calculators, personal belongings or the Candidate Pledge) has violated VII(A).
- Disclosing confidential exam information to candidates or to the public. This covers specific questions, and also the broad topic areas or formulas that were tested or not tested. The obligation continues after the exam and after the testing window closes. Discussing the curriculum itself, as opposed to the exam, in study groups or online forums is allowed.
- Improperly using the CFA designation to further personal or professional goals.
- Misrepresenting information on the Professional Conduct Statement (PCS) or in connection with the CFA Institute Professional Development Program.
VII(A) does not restrict expressing opinions. Members and candidates may criticize CFA Institute, the CFA Program, pass rates, exam difficulty or CFA Institute's advocacy positions. An honestly held opinion, even a harsh or mistaken one, is neither dishonesty, fraud or deceit nor an act that reflects adversely on professional reputation, integrity or competence, so it does not violate Standard I(D) Misconduct either.
Members who volunteer in the CFA Program (for example, as question writers, graders or proctors) must not ask for, or disclose, information about exam questions (whether under consideration or actually used), the grading process or the way questions are scored.
Standard VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program
When referring to CFA Institute, CFA Institute membership, the CFA designation, or candidacy in the CFA Program, Members and Candidates must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute, holding the CFA designation, or candidacy in the CFA Program.
Membership and the right to use the designation. To remain an active member and keep the right to use the designation, a charterholder must (1) pay annual membership dues and (2) file the annual Professional Conduct Statement. A member who does not meet both is not active and may not use the CFA designation: unlike a university degree, the right to use it is not permanent. Nothing prevents a former charterholder from stating the facts of past status (e.g., "I was awarded the CFA charter in 2011"), as long as he or she does not imply the designation is currently held. How many attempts it took to pass the exams has no bearing on membership status.
Candidacy. References to candidacy in the CFA Program must not misrepresent or exaggerate what candidacy means. A candidate may describe it accurately, for example by naming the level for which he or she is registered ("Level II candidate in the CFA Program"), and may state facts such as the levels passed, the years in which they were passed, that each level was passed on the first attempt, or that the whole program was completed in three years. Claiming superior ability because of such facts is not permitted.
What is prohibited:
- Implying a partial designation: there is no partial CFA designation, so "CFA Level II" or "Level I CFA" after a name is not allowed.
- Making promotional promises or guarantees tied to the designation: over-promising individual competence or future investment results (higher returns, lower risk, better service), or claiming superior ability because the exams were passed quickly or on the first attempt. A guarantee of returns is also a Misrepresentation regardless of any reference to the designation.
What is allowed: stating that one is a charterholder, describing accurately what the designation requires (three levels of exams, work experience, commitment to the Code and Standards), and stating that holding the charter reflects a commitment to high ethical standards.
Using the designation after a name
Key concept
| Acceptable | Not acceptable | Why |
|---|---|---|
| Kim Ortega, CFA (dues paid and Professional Conduct Statement filed this year) | Kim Ortega, CFA (dues unpaid) | Only an active member may use the designation |
| Kim Ortega, Chartered Financial Analyst (active member) | Kim Ortega, CFA Level III | There is no partial designation |
LOS 101.b — Practices that help prevent violations
- Errors in references to the designation or to candidacy are common, so members should make sure their firms are aware of the proper references to a member's CFA designation or candidacy, and firms should review résumés, business cards, websites and marketing materials before use.
Worked example: reviewing a candidate's biography
Tomas Reyes passed Levels I and II of the CFA Program on his first attempts and is registered for the Level III exam. His firm's draft website biography reads: "Tomas Reyes, CFA Level II. Tomas is a Level III candidate in the CFA Program. Having passed each level on the first attempt, he can deliver higher returns than his peers." Decide which statements conform to Standard VII(B) and how the biography should be corrected.
Step 1. "CFA Level II" after his name implies a partial designation. No partial CFA designation exists, so this violates Standard VII(B).
Step 2. "Level III candidate in the CFA Program" describes his candidacy accurately by naming the level for which he is registered, so it conforms.
Step 3. Stating that he passed each level on the first attempt is a fact and is allowed. Promising higher returns because of it ties a promise of future investment results to his exam record and violates Standard VII(B).
Step 4. Members should make sure their firms know the proper references to the designation and to candidacy, and the firm should review the biography before it is used.
Result. A corrected biography reads: "Tomas Reyes is a Level III candidate in the CFA Program. He passed Levels I and II on his first attempts."
LOS 101.c — Conduct that conforms versus conduct that violates
Key concept
| Statement or act | Conclusion |
|---|---|
| "I passed Level II of the CFA Program in 2016." | Conforms (fact, no partial designation) |
| "I passed all three levels on my first attempt." (true) | Conforms |
| "Kim Ortega, CFA Level I" | Violates VII(B) |
| Business card shows "CFA" although annual dues have not been paid | Violates VII(B) |
| "Earning the charter proves my superior ability." | Violates VII(B) |
| All analysts are charterholders, "so we give better service than our rivals" | Violates VII(B) only because of the promise of better service; stating the fact is fine |
| Posting remembered exam questions after the window closes | Violates VII(A) |
| Blog listing topics that were left off the exam | Violates VII(A) |
| Public criticism of pass rates or advocacy positions | Conforms |
| Dues unpaid, Professional Conduct Statement filed | Not active; may not use the designation |
| False answers on the annual Professional Conduct Statement | Violates VII(A) |
| Bringing a prohibited item into the exam room | Violates VII(A) |
Common exam traps
- Misstating other résumé facts, such as a college major, is a Standard I(C) Misrepresentation issue; only statements about CFA Institute, the designation or candidacy fall under VII(B). One résumé can breach both.
Bottom line
- Conduct that breaches Standard VII(A) includes cheating, or offering to help someone cheat, on a CFA Institute exam, breaking CFA Program rules and policies, disclosing confidential exam information, improperly using the CFA designation and misrepresenting information on the Professional Conduct Statement.
- Confidential exam information includes specific questions and the broad topic areas or formulas that were or were not tested, the obligation continues after the testing window closes, and discussing the curriculum itself is allowed.
- Standard VII(A) does not restrict expressing opinions, so criticizing CFA Institute, the CFA Program, pass rates or CFA Institute's advocacy positions is allowed.
- To remain an active member and keep the right to use the CFA designation, a charterholder must pay annual membership dues and file the annual Professional Conduct Statement.
- No partial CFA designation exists, so a title such as "CFA Level II" is not allowed, but a candidate may state facts such as the levels passed, the years they were passed and that each was passed on the first attempt.
- Claiming superior ability, or promising higher returns, lower risk or better service, because of the designation or exam results violates Standard VII(B).
- Stating that one is a charterholder, describing accurately what the designation requires, and stating that holding the charter reflects a commitment to high ethical standards are allowed.
- Members should check that their firms know how to refer correctly to a member's CFA designation or candidacy.
Quick check
Tariq Haddad, a Level III candidate, takes part in an online forum where candidates discuss curriculum readings in depth during the study season. Four days after his testing window closes, frustrated by difficult questions, he posts several exam questions he remembers and asks other members how they answered them and why. Several other candidates respond by posting questions they remember. Haddad and the other candidates are most likely:
Show answer and explanation
Correct answer: B
Under Standard VII(A) Conduct as Participants in CFA Institute Programs, confidential information about the exam may not be disclosed, and that obligation continues after the exam and after the testing window has closed. Posting remembered exam questions is therefore a violation; discussing the curriculum itself in the forum beforehand was not.
Why the other options are wrong
- A. Confidentiality of exam content does not expire when the testing window closes.
- C. Discussing the curriculum itself before the exam is permitted; the violation is disclosing exam content.
Key takeaway Curriculum discussion is allowed. Exam content stays confidential with no time limit.
Practice Questions
A regional broker has just hired Mei Tanaka and Callum Reid. Each cleared both Level I and Level II at the first try, and neither business card refers to the CFA Program. Tanaka's marketing materials accurately describe the requirements of the CFA Program and add: "Because I cleared the first two levels at the first try, my clients can expect better results than other advisers deliver." Reid's materials say only, and truthfully, that he cleared the first two levels at the first try. Has either new hire violated the CFA Institute Standards of Professional Conduct?
Show answer and explanation
Correct answer: A
Tanaka violated Standard VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program. Stating that she passed each level at the first try is allowed, but claiming superior ability because of it, and promising better results, is not. Reid's statement about his first-try passes is a true fact with no claim attached, so it is allowed.
Why the other options are wrong
- B. Reid's statement is factual and does not imply a partial designation or superior ability, so he has not violated the Standard.
- C. Promising better results because the exams were passed on the first attempt is a promotional promise tied to the CFA Program, so Tanaka has violated the Standard.
Key takeaway Levels passed, even "on the first try," are facts that may be stated. Claiming superior ability or better results because of them is a violation.
Anika Sorensen, CFA, learned in March that a national securities regulator had opened an investigation into her trading practices. When she completes her annual Professional Conduct Statement in May, she answers "no" to the question asking whether she is the subject of any regulatory investigation. Sorensen has most likely violated:
Show answer and explanation
Correct answer: A
Misrepresenting information on the Professional Conduct Statement compromises the integrity of CFA Institute programs and is conduct that Standard VII(A) Conduct as Participants in CFA Institute Programs expressly covers. Her answer is false whether or not the regulator eventually finds wrongdoing.
Why the other options are wrong
- B. V(C) concerns keeping records that support investment analysis and client communications, not answers given to CFA Institute.
- C. The question asks whether she is the subject of an investigation, which she is; answering falsely is the violation, regardless of the outcome.
Key takeaway False statements on the Professional Conduct Statement violate VII(A).
This reading has 25 questions in the full bank. Practice all of them.
Key Takeaways
- Curriculum discussion is allowed. Exam content stays confidential with no time limit.
- Levels passed, even "on the first try," are facts that may be stated. Claiming superior ability or better results because of them is a violation.
- False statements on the Professional Conduct Statement violate VII(A).