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Knowledge of the law. Stricter law always apply.

- applicable law
- stricter law
- knowingly partake/assist in violation
- dissociation from any such violation
2. Ind & obj
- gift could be considered supplementary compensation
- disclose to employers such benefits
- true opinion: free from bias
- solicitations (direct/indirect): actual and perceived ind
may accept modestly arranged travel to partake in apt informationgathering events.
3. misrep
- prohibits members/candiddates from guaranteeing clients any
specific return on volatile investments even if its based on historical
perf but can state fact like govt treasury bonds return guaranteed
by govt
- care & diligence when using 3rd party manager
consistency in perf reporting
doesnt req benchmark to always be provided in order to comply
- plagiarism & omissions
- firm retains right to use work completed by prev EE
4. Misconduct
- all conduct that reflects poorly on the professional integrity, good
reputation/ competence of members/ candidates even outside of
working hours
1. material, non-public information
- material : reliable, ambiguity, passage of time
- non-public: until disseminated ( made known) to market
- may use insider information provided legitimately by the source
coy for specific purpose of conducting due diligence
- mosaic theory: (1)public (2)nonmaterial non-public information
2. market manipulation
- information-based manipulation analyst spreading false rumours
about coy to instigate traders to act on false information to cause
prices to jump
- transaction-based manipulation pump & dump/ short sell/
manipulate prices

Duties prioritization : client, capital market, employer, you

Duties to client
1. Loyalty, prudence and care
- fiduciary duty ( enhanced trust position): advisor/acting on behalf
of clients. Fiduciary duty is only owed by an advisor, not a trader
who executes trade and ensure price of trade/stock is cheapest
thats all
- actual clients : pension plan holders. Must know your clients.
Always the beneficiaries. If you are managing passive index fund/etf
no beneficiaries so need to follow IPS/mandate.
- soft commission vs direct brokerage
clientyou (manage)broker (trade)
Broker earn from commission and broker sometimes give you
research reports in returnsoft commission. Have to make sure that
research reports from soft commission ultimately benefits clients. If
you buy from them using actual cash, its direct brokerage.
Referral fees both you (manager) and brokers have different
clients. To get more clients, you may ask the broker to give you
clients so that you give the broker referral fees. You can be the one
receiving it as well. Soft comm is always only applied to research
- proxy voting ( shares owed by clients are in your custody/clients
ask you to vote for these shares, must make sure you vote as they
have values as well)
2. Fair dealing
- Fair does not mean equal: higher-fee paying cleints will be given
more service
You can give premium services in return for higher fees but must
make sure it doesnt disadvantage the lower-paying clients.
Family members are clients: must treat them fairly as well, equally
like other fee-paying clients.
- Investment recommendation: disseminate to all clients even
though some may be paying a premium fee ( when you issue
research reports)
- Investment action (when clients act on research reports): always
prorated lot allocation to all clients (including family member
clients). Must be round blocs cant have decimals
3. Suitability
- Advisor relationship: investor constraints, strategy, risk tolerance,
objective (IPS) every client has unique needs to be met
- Context of total portfolio: diversification. E.g. strong buy security
but must see it in the context of total portfolio
- Specific mandate: ensure consistency with policy. If an investment
action that client wants not within iPS has significant impact, must
make sure client understand IPS or get them to sign something.
4. Performance presentation

- Fair, accurate, complete. Cannot cherry pick a portfolio that is

doing better than others to present
5. Preservation of confidentiality
- Former, current, prospective clients (even after end of client
- Exceptions: illegal activities, required by law, clients permit
- Professional conduct program by CFA institute ( if suspected illegal
( not a violation by forwarding info to PCP)
Duties to Employers
1. Loyalty
- Always place interest of clients above employer interests
- Undertake independent practice: engage in competitive
business ( vs making preparations for such practice)
- Render such indp pract only when consent is given by ERS
- Leaving an ER (1) Skills & experience (2)Simple knowledge of
client not confidential
- (3) Does not prohibit former EEs from contacting clients if
means in which you obtain information in from the public and
not from former ER
- (4) Work performed must be erased e.g. model you created in
the firm cannot be claimed ownership by you. You can develop
from scratch in a new company but not copy and paste.
- (5) Take of non-compete agreement. If you have signed such
an agreement, cannot solicit business.
2. Additional Compensation Arrangements
- Written consent from ERS
- Disclosure req to evaluate true cost of service being to client & to
evaluate action/intention
3. Responsibility of supervisor
- System of supervision: delegation of duties ( supervisor still
responsible after delegation)
- (1)Detect & prevent violation (2) Adequate policy (3) Monitor and
enforcement (4) Report violation
Investment Advice, reporting, action
1. Due diligence & reasonable basis
- Can use 3rd party reports to substantiate only if they are properly
2. Communication with clients & prospective clients
- Disclose basic format and general principles of investment process
- limitations and risks
3. Record retention
- Property of the firm, must be retained for at least 7 years
Conflict Of interest

1. Disclosure of conflicts
- full and fair disclosure
- (1)EEs, (2) Clients (3)Cross-dept (4)Stock ownership (5) Director
generally advised not to buy stocks if you are EE of coy since its
about perception, public perception is that you will want to now
issue fav reports for the coy to increase price of stocks.
2. Priority of transactions
- Personal trading is secondary to client
- Impact on all accounts with beneficial ownership
- Family client acct should neither be disadv / given preferential
3. Referral Fees
- Disclosure compensation/benefit to ER and clients (Both vs only
ER for additional compensation)
- Advise client of any referral fees received
- disclosure allows clients to assess partiality in service and
determine full cost of service
Responsibility as CFA institute member/candidate
- Candidate is either someone who is sitting for the exam/ waiting
for results
- Member:
- CFA must be used as an adjective and cannot be applied to say
holding CFA is superior to someone without. You can only say you
have completed it.
Everytime you show return of portfolio, cannot always show
To address misleading practices (1)Representative accts
(2)Survivorship bias (3)Varying time periods
Compliance by: investment management firm (actually mged
Effective date: jan 1, 2011.
Firms must include terminated composities on the firms list of
composite descriptions not performance for at least 5 years after
composite termination.
Composiites: what is part of composite aggregation of 1/more
portfolios managed according to similar investment mandate,
objective or strategy, all actual fee-paying and discretionary
portfolios ( manager has discretion to intervene), and what is part of
total assets both fee and non fee paying and both discretionary
and non discretionary?
9 sections:
Fundamentals of compliance: a gips compliant firm has to be fully
compliant, no partial compliant, firm wide basis. No need to be
verified by 3rd party but recommended to do so ( how you obtain
composite and how you cal returns). Total assets: all discretionary
and non-discretionary assets both fee and non fee paying

Input data
Calculation methodology
Composite construction: all actual, fee paying discretionary
portfolios, only actual assets managed by firms, terminated porfolios
must be included
Presentation and reporting
Real estate
Private equity
Wrap fees/separately managed accts portfolios