Why Ethics matters for the CFA Program

Ethics is one of the most important parts of the CFA Program you will encounter. It’s also one of the topics that people get wrong. There is no reason to! 10-15% of the entire CFA Program is dedicated to Ethics, and there is a lot of overlap between CFA Exam Levels I to III. Borderline exam results may actually be pushed to a Pass or Fail based on your result in the Ethics portion!

  • Ethics is a cornerstone subject for the investment profession due to professionals’ fiduciary duty towards clients
  • 10-15% of the entire CFA Program is dedicated towards Ethics
  • Borderline exam results may be pushed to a Pass/Fail based on an Ethics Adjustment

Ethics as a Cornerstone of the Investment Profession

A lot has been said about ethics – both within the CFA Program as well as outside of it – and it warrants a post on its own because of its significance to you.

Investment professionals have a fiduciary duty towards their clients. It is important that you as a (prospective) investment professionals are trustworthy and always put your client’s interest first (but within ethical and legal boundaries). The recent 2007-2008 credit crisis clearly shows the level of distrust that can be created by a failure to put client’s interest first. Note, we want to avoid indicating that investment professionals were at the heart of the credit crisis!

The CFA Institute does a good, yet challenging, job at combining investing best practices and ethical best practices.

The CFA Program dedicates significant importance (10-15% of the entire CFA Program) to Ethics

15% of CFA Level I, 10-15% of CFA Level II and III are dedicated to Ethics. That makes it one of the most important topics in the entire CFA Program. How can the CFA Program dedicate so much of the final outcome to it? Well, that’s because the course material goes beyond just discussing ethical aspects of working in the investment profession. The CFA Program goes into strenuous detail as to how ethical best practices should be applied to the everyday decision-making process. It also defines a Code of Ethics & Standards of Professional Conduct.

You should take Ethics serious from Level I because it will save you time in Levels II and III. The subjects and LOS are very similar across all levels, which means that you will experience huge synergies in getting it right from the start. Given the fact that many of the principles underpinning Ethics can be relatively easy to master (but require repetition), this is one of the most efficient topic areas. Don’t allow yourself to miss points on this topic!

The Ethics Adjustment may lead you to Pass or Fail!

Ethics is fundamental to the investment profession due to its importance to so many people (think pensions and savings). Client reliance on an investment advisor (you?) can only be facilitated if that person is fit-and-proper. Hence, the CFA Program takes its importance very serious:

The Board of Governors instituted a policy to place particular emphasis on ethics. Starting with the 1996 exams, the performance on the ethics section became a factor in the pass/fail decision for candidates whose total scores bordered the minimum passing score. This adjustment can have a positive or negative impact on these candidates’ final results.

This means that a borderline score –likely defined as a few questions above or below the Minimum Passing Score – can actually be decided by your score on the Ethics part. That means that even if you technically passed the exam, you can fail it by scoring poorly on Ethics!

The CFA Institute is telling you to eat your veggies.