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You are reading the 2026 curriculum (exams up to November 2026). Sitting in February 2027 or later? Go to the 2027 Ethical and Professional Standards guide.

Learning Module 1 of Ethical and Professional Standards 15–20% of the exam

Ethics and Trust in the Investment Profession

4 lessons. About 20 minutes in cram mode, 100 minutes in full.

Start with lesson 1 Learn with Sensei Read the module summary

Lessons

  1. 1
  2. 2
  3. 3
  4. 4
    A framework for ethical decision making

    describe 4 min cram, 28 min full

What the exam expects you to do

  1. Explain ethics.What ethics is, and why professions have a code of ethics
  2. Describe the role of a code of ethics in defining a profession.What ethics is, and why professions have a code of ethics
  3. Describe professions and how they establish trust.How professions build trust, and professionalism in investment management
  4. Describe the need for high ethical standards in investment management.How professions build trust, and professionalism in investment management
  5. Explain professionalism in investment management.How professions build trust, and professionalism in investment management
  6. Identify challenges to ethical behavior compare and contrast ethical standards with legal standards.Challenges to ethical behavior, and ethical vs legal standards
  7. Describe a framework for ethical decision making.A framework for ethical decision making

Module summary

The whole module on one sheet, organised by lesson: what to memorize, how the ideas fit together, the formulas and the key terms. No paragraphs, just what you need to revise.

How deeply to learn each part
Know the idea
Understand it in general. It frames other topics, but you will not calculate with it.
Use it
Understand it well enough to solve a question with it. Recognize when it applies.
Memorize
Learn it by heart. The exam will not give it to you.
1

What ethics is, and why professions have a code of ethics

Known

MemorizeCode of ethics vs standards of conduct

Code of ethicsStandards of conduct
What it isWritten shared principles and valuesSpecific, minimum required behaviors
DetailGeneralSpecific
PurposeTells members and the public what the community stands forTurns principles into practice; benchmark for discipline

Memory hook Code = compass (the direction). Standards = signposts (the minimum you must follow). Members may always do more, never less.

Know it cold A code communicates shared values and builds trust. It does not guarantee that every member behaves ethically.

MemorizeWidely acknowledged ethical principles

PrincipleIn plain words
HonestyTell the truth
TransparencyShow the risks, costs and workings
Fairness (justice)Treat people evenly
DiligenceDo the work with care
Respect for the rights of othersTheir dignity and interests count

Memory hook Rebuild them from what a client asks of an adviser: tell me the truth (honesty), show me the costs (transparency), treat me like everyone else (fairness), do the work (diligence), respect my interests (respect).

Know it cold Ethical conduct = following moral principles and weighing the direct and indirect consequences for everyone affected.

Key terms

  • ethics Know the idea
  • ethical principles Know the idea
  • ethical conduct Use it
  • stakeholders Use it
  • consequences Know the idea
  • code of ethics Memorize
  • standards of conduct Memorize
  • community of members Know the idea
Where rules of conduct come from
Rules of conduct
  • Laws and regulations Know the idea set by a governing body; differ between countries
  • A community Memorize a profession, employer or university
    • Code of ethics Memorize general written principles and values
    • Standards of conduct Memorize specific minimum behaviors
Stakeholders in an investment decision
Stakeholdersanyone affected directly or indirectly
  • Clients rely on your advice and care
  • Employer and colleagues share the firm and its reputation
  • The profession and the market regulators, other participants, trade bodies
  • Wider community society that depends on trusted markets
2

How professions build trust, and professionalism in investment management

Known

MemorizeWhat a profession does to earn trust

CharacteristicIn short
Normalizes behaviorCodes and standards, complementing regulation
Serves societyGoes beyond the letter of the code
Client focusedClient interests above personal ones (fiduciary duty)
High entry standardsExamined entry; more than academic credentials
Body of expert knowledgeShared, based on best practice
Continuing educationContinuing professional development each year
Monitors conductSelf-regulation and sanctions
CollegialRespect for peers, even competitors
Recognized oversight bodyMonitors competence and imposes discipline
Engages membersMembers volunteer and help shape the values

Memory hook Trust needs a promise, proof and a penalty: set the standard (code, entry, knowledge), prove it stays met (CPD, monitoring) and punish breaches (discipline).

Know it cold Fiduciary duty = a high standard of care when acting for the benefit of another party (care, skill and diligence; client first). It does not guarantee returns.

MemorizeNot a professional body

EntityRole
EmployerRuns a business; may support membership
RegulatorEnforces law
Trade associationPromotes industry interests

Memory hook They support the industry but do not exist to set and police professional standards.

Know it cold Investment management is a young, evolving profession: it meets most, but not yet all, expectations of a profession.

Key terms

  • profession Memorize
  • professional body Use it
  • trust Know the idea
  • fiduciary duty Memorize
  • client focus Use it
  • continuing professional development Memorize
  • self-regulation Use it
  • information asymmetry Use it
  • professionalism Use it
How a profession establishes trust
A professionan occupational community with education, expert knowledge and a framework of behavior
  • Sets the standard Memorize
    • Normalizes behavior codes and standards, complementing regulation
    • High entry standards examined entry beyond academic credentials
    • Body of expert knowledge built from best practice
  • Keeps it met Memorize
    • Continuing education continuing professional development
    • Monitors conduct self-regulation, sanctions
    • Recognized oversight body resources, information, discipline
  • Serves others Memorize
    • Client focused fiduciary duty; client before self
    • Service to society goes beyond the code
    • Collegial and engaged respect for peers; members shape the values
3

Challenges to ethical behavior, and ethical vs legal standards

Known

MemorizeThe two challenges to ethical behavior

ChallengeWhat goes wrongTypical examples
Overconfidence biasWe think we are more ethical than average, so we skip the checks"I am honest, so I would never do that"
Situational influencesExternal pressure shapes decisions, and we underestimate itMoney, prestige, loyalty; what others around us do

Memory hook Overconfidence is the blind spot inside you. Situational influences are the push around you. Both shift focus from long-term to short-term.

Know it cold Situational influences, not character alone, often decide behavior. Loyalty to a supervisor or colleagues can be even more powerful than money.

MemorizeLegal vs ethical

EthicalUnethical
LegalDisclosing all fees clearlyTrading on a confidential tip where no law forbids it
IllegalWhistleblowing that breaches a confidentiality rule (some places)Fraud, theft

Memory hook Legal is the floor, not the ceiling.

Know it cold Laws are an insufficient guide because they follow practice (lag), can be vague, vary across places, and get interpreted in the most convenient way.

Key terms

  • overconfidence bias Memorize
  • situational influences Memorize
  • bystander effect Know the idea
  • short-term focus Use it
  • loyalty Use it
  • legal standards Use it
  • ethical standards Use it
  • whistleblowing Use it
Challenges to ethical behavior
Challenges to ethical conducttogether they push focus to the short term
  • Overconfidence bias Memorize we think we are more ethical than average
  • Situational influences Memorize external factors we underestimate
    • Money salary, bonus, investment gains
    • Prestige promotion, status, being seen as successful
    • Loyalty to a supervisor, employer or colleagues; often the strongest
    • Others around us Know the idea the bystander effect and peer conformity
Legal and ethical do not always match
Types of conduct
  • Legal and ethical Memorize most conduct
  • Legal but unethical Memorize trading on confidential information where no law forbids it
  • Ethical but illegal Memorize some whistleblowing; civil disobedience
  • Illegal and unethical fraud, theft
4

A framework for ethical decision making

Known

MemorizeThe four phases

PhaseWhat you do
IdentifyRelevant facts; stakeholders and duties owed to each; ethical principles; conflicts of interest
ConsiderSituational influences and personal biases; additional guidance; alternative actions
Decide and actChoose the action and carry it out
ReflectWas the outcome as anticipated? Why or why not?

Memory hook Identify looks outward (who is affected, what is owed). Consider looks inward and around (what is pushing me, who can advise, what else could I do). Then act. Then learn.

Know it cold Seeking guidance and generating alternatives are Consider, not Identify and not Decide. Reflect is part of the framework, not optional. The process is often iterative.

MemorizeUseful order of duties

RankOwed to
1The integrity of the markets and the profession
2Clients
3The employer
4Yourself

Memory hook Outward in: market, clients, employer, me.

Know it cold Where client and market interests conflict, the CFA Institute Code and Standards make duty to market integrity the overriding obligation.

Key terms

  • ethical decision-making framework Memorize
  • identify Memorize
  • consider Memorize
  • decide and act Memorize
  • reflect Memorize
  • duties owed Use it
  • conflicts of interest Use it
  • alternative actions Use it
Ethical decision-making framework
Ethical decision-making frameworkoften iterative; you may loop back to an earlier phase
  • Identify Memorize look outward
    • Relevant facts separate fact from opinion and bias
    • Stakeholders and duties owed clients, employer, colleagues, market, profession
    • Ethical principles and legal requirements
    • Conflicts of interest including conflicts between duties
  • Consider Memorize look inward and around
    • Situational influences and biases bonus, boss, prestige, loyalty
    • Additional guidance compliance, mentor, firm policy, Code and Standards, legal counsel
    • Alternative actions generate and weigh the options
  • Decide and act Memorize choose the best option for all stakeholders
  • Reflect Memorize was the outcome as anticipated, and why?

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