Ethics: duties before slogans
Ethics items fail when you treat professional standards as motivational posters. A useful drill asks three questions every time: Who do you owe a duty to? Do you still have independent judgment? Have you created a conflict you have not disclosed or managed? CFA Drill writes original fact patterns for that judgment. They are not Institute item-set reprints.
This page is educational only. It is not legal advice, compliance advice, or an official interpretation of CFA Institute materials. Operator: EonDigi Inc.
1. Start with the role and the pressure
Good stems name a role—research analyst, portfolio manager, supervisor, client-facing advisor— then add one pressure: bonus, friendship, travel, draft research, side consulting, social media. Your job is to choose the action most consistent with placing client and profession interests first, not the action that feels politically easiest inside a firm.
Distractors usually do one of three things: maximize firm revenue, hide behind “it is legal,” or outsource judgment to a manual you have not actually applied to the facts.
2. Independence is a process, not a personality
Independent professional judgment means you can still change the conclusion when the facts change. If investment banking, a large issuer relationship, or your personal account would make a downgrade painful, the item is usually about disclosure, recusal, supervision, or delaying the note—not about writing a softer headline.
- Ask whether anyone else is steering the conclusion.
- Ask whether you can document a reasonable basis.
- Ask whether a reader would feel misled by what you omit.
3. Gifts, entertainment, and issuer-paid travel
Hospitality is not automatically corrupt, but Level I items often test whether the benefit could reasonably be seen to influence research, voting, or allocation. The consistent pattern in our drills: refuse or disclose per firm policy before the sensitive decision is published or executed. “Everyone does it” is not an ethical analysis.
Sample (original): A buy-side analyst is offered tickets worth several hundred dollars by a corporate IR contact the week before a rating change. The most consistent action is to refuse or disclose under firm policy before the research is published—not to treat hospitality as costless.
4. Reasonable basis and communications
Recommendations need a basis you can reconstruct later: data, methods, and limitations. Public comments must be fair and not overclaim. If a stem offers a blog tip, a rumor, or a single chart with no workpapers, the Code-shaped answer is to do the work or stay silent—not to publish and “update later.”
Social media does not create a new ethics universe. A short post that implies a recommendation still needs the same care as a formal note, scaled to the audience and the claim.
5. Loyalty, care, and conflicts with employers
Duties to employers matter, but they do not erase duties to clients or the profession. Side projects, moonlighting research, or directing trades to friends usually fail when they compete with employer time, misuse confidential information, or create undisclosed conflicts. The repair is typically disclosure and consent—or declining the activity—not clever compartmentalization.
6. Supervision and “I did not know”
Supervisors are tested on whether systems and culture make misconduct harder, not on whether they personally typed every email. If a stem shows ignored red flags, missing reviews, or pressure to skip compliance, the keyed answer usually strengthens supervision—not blaming juniors alone.
7. Worked mini-drills
Stem: A PM soft-promises a client “we never lose money in this sleeve.” The most consistent action is to:
A. Keep the language because it helps retention
B. Correct the statement; avoid guarantees inconsistent with risk disclosures
C. Move the promise to a private chat so it is not “marketing”
Explanation: B. Fair dealing and honest communication do not improve when the channel becomes private.
Stem: You discover a material error in a published model after clients traded. You should:
A. Wait for the next quarterly update to avoid embarrassment
B. Promptly correct and communicate according to firm policy and duties to clients
C. Delete the old PDF and pretend the new file was always current
Explanation: B. Hiding errors compounds the integrity failure.
8. Material nonpublic information (plain language)
If information is both material and nonpublic, trading or tipping is the usual failure mode in teaching items. “I only told my spouse” does not fix the problem. Waiting until the information is public—and ensuring you are not still using a nonpublic edge—is the direction most consistent with integrity of capital markets. When unsure whether something is material, treat the uncertainty itself as a reason to pause and escalate inside firm policy, not as permission to trade.
9. Allocation and fairness among clients
When a hot issue or limited opportunity arrives, fairness is about process: disclosed methods, consistent application, and no silent preference for accounts that pay you more. A stem that rewards “house accounts first” or “friends and family ahead of clients” is testing whether you can say no to a convenient injustice.
10. A weekly Ethics practice habit
- Ten stems attempt-first, mix of gifts, research, and communications.
- For each miss, write the duty in six words or fewer.
- Revisit blindspots after one sleep cycle—not immediately.
- Once a week, do a mixed set so Ethics cannot hide behind a filter.
11. How to practice Ethics in CFA Drill
Free accounts get a fixed Ethics sample. Use the attempt-first method, then open reverse engineering for the duty that was tested—not a generic pep talk. Full bank and progress states: cfa-drill.com. Related: study guide, Quant, FSA.