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 5 of Ethical and Professional Standards 15–20% of the exam

Ethics Application

5 lessons. About 40 minutes in cram mode, 150 minutes in full.

Start with lesson 1 Learn with Sensei Read the module summary

Lessons

1
How to answer Ethics vignettes: a five-step method
evaluate 6 min cram, 24 min full
2
Professionalism cases: law, independence, misrepresentation, misconduct, competence
evaluate 8 min cram, 32 min full
3
Cases on market integrity and duties to clients
evaluate 10 min cram, 36 min full
4
Cases on duties to employers and investment analysis
evaluate 8 min cram, 30 min full
5
Cases on conflicts of interest and CFA responsibilities
evaluate 8 min cram, 28 min full

What the exam expects you to do

Evaluate practices, policies, and conduct relative to the CFA Institute Code of Ethics and Standards of Professional Conduct.How to answer Ethics vignettes: a five-step method
Explain how the practices, policies, and conduct do or do not violate the CFA Institute Code of Ethics and Standards of Professional Conduct.How to answer Ethics vignettes: a five-step method

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.

Hide what I know

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.

How to answer Ethics vignettes: a five-step method

Known

MemorizeThe five steps

Step	What you do
1. Read the stem	Violated? Which Standard? Or what should the person do?
2. Find the decisive fact	One detail flips the answer (see the pairs below)
3. Map to a Standard	Whose interest is at stake: market, client, employer, self, CFA Institute
4. Check the neighbors	Gifts: I(B), IV(B), VI(A). Trade order: III(B), VI(B). Claims: I(C), III(D), VII(B)
5. Choose the most complete answer	Complies, fixes it for everyone affected, documented. Reject too lenient and too strict

Memory hook Read, Find, Map, Check, Choose. The order is the question itself: what is asked, what decides it, who owns it, who else claims it, what finishes the job.

Know it cold One fact decides the case. Find it before you read the options.

MemorizeDecisive-fact pairs

Pair	Where it bites
Written / verbal	Consent for outside pay or bonuses: IV(A), IV(B)
Before / after	Own trade vs client trade: VI(B). Disclosure before engagement: VI(C)
Material / immaterial	Inside information: II(A)
Public / nonpublic	Inside information: II(A)
Prominent / buried	Conflict disclosure: VI(A)
Client / employer / self	Whose interest ranks first

Memory hook Each pair is one yes-or-no fact. If you cannot find which side of the pair applies, reread the vignette.

Know it cold Too lenient: "local law allows it", "the boss approved". Too strict: "no gifts ever", "report to CFA Institute", "resign now".

Key terms

ethics vignette Use it
decisive fact Memorize
most likely violated Use it
most appropriate action Use it
neighboring Standards Memorize
too-strict answer Memorize

The five steps for any Ethics vignette

Ethics vignettea 4 to 8 sentence case and one question

1. Read the stem Memorize violated, which Standard, or what to do
2. Find the decisive fact Memorize written or verbal, before or after, material, public, prominent
3. Map to a Standard Memorize market, client, employer, self, CFA Institute
4. Check the neighbors Memorize the lookalike Standard that tempts you
5. Choose the most complete answer Memorize
- Reject too lenient local law allows it, the boss approved
- Reject too strict ban everything, report to CFA Institute, resign now

Neighboring Standards to check

Lookalike Standardsthe same facts can point to more than one heading

Gifts and outside pay
- I(B) Independence and Objectivity anything that could bend your judgment
- IV(B) Additional Compensation written consent from the employer
- VI(A) Avoid or Disclose Conflicts disclose what you cannot avoid
Order of trades
- III(B) Fair Dealing client against client
- VI(B) Priority of Transactions you against client and employer
Claims and promotion
- I(C) Misrepresentation any false or misleading statement
- III(D) Performance Presentation fair, accurate, complete results
- VII(B) CFA reference the designation and the program

Professionalism cases: law, independence, misrepresentation, misconduct, competence

Known

MemorizeStandard I in four questions

Question	Standard	Required move
Is a rule being broken that I know about?	I(A) Knowledge of the Law	Follow the stricter of law and Code; do not take part; dissociate
Is a gift, fee or pressure bending judgment?	I(B) Independence and Objectivity	Decline, or keep it modest and approved; disclose
Is a statement false, exaggerated or borrowed?	I(C) Misrepresentation	Correct it; credit sources; no knowing misstatement
Is there dishonesty or conduct that damages integrity?	I(D) Misconduct	No fraud, deceit or dishonesty
Can I do the role I now hold?	I(E) Competence	Build and keep competence before taking decisions

Memory hook Rule, pressure, claim, honesty, ability: R-P-C-H-A in Standard order I(A) to I(E).

Know it cold A partial fix is not compliance. Dissociate until the problem is corrected for everyone.

MemorizeDissociation ladder

Step	Action
1	Question the conduct; ask for it to stop
2	Escalate to the supervisor, compliance or legal counsel
3	Refuse to take part; document what you did and why
4	If it continues, dissociate further. Leaving the firm may become necessary

Memory hook Ask, escalate, refuse, record. Resign only when nothing else removes you from the wrong.

Know it cold Reporting to CFA Institute or authorities is not the first required step.

Key terms

dissociation Memorize
issuer pressure Use it
misrepresentation of credentials Use it
plagiarism Use it
competence in a new role Use it

Standard I: which Standard fits the facts?

A professionalism caseask what is wrong in the facts

A rule is being broken Memorize I(A) Knowledge of the Law
- Follow the stricter rule law or Code and Standards
- Do not take part, dissociate escalate, refuse, document
Judgment is being bent Memorize I(B) Independence and Objectivity
- Gifts, fees and trips from issuers or brokers
- Client or employer pressure on a rating
A statement is false or borrowed Memorize I(C) Misrepresentation
- Inflated credentials or results
- Plagiarism text, data or ideas used without credit
The person is dishonest or incompetent
- I(D) Misconduct fraud, deceit, dishonest acts
- I(E) Competence role beyond skills, no plan to build them

Cases on market integrity and duties to clients

Known

MemorizeWhat each case type requires

Case	Standard	Required action
Material and nonpublic information	II(A)	Do not trade or tip; encourage public disclosure; notify compliance
Mosaic theory	II(A)	Public data plus nonmaterial nonpublic is fine; a material tip is not
Misleading trading or false rumors	II(B)	No manipulation of prices or volume
Fair allocation	III(B)	Pro rata, same price, no favoring by fee or size
Unsuitable request	III(C)	Explain risk, revisit the IPS, decline or follow policy, document
Dropped accounts in results	III(D)	Fair, accurate, complete: include terminated accounts
Client confidences	III(E)	Keep confidential unless illegal activity, legal duty or client consent

Memory hook Information cases: freeze, tell compliance, push for disclosure. Client cases: whose interest first, fair to others, suits this client, honest numbers, private.

Know it cold Material + nonpublic: stop trading and tipping. Allocation: proportional to the order, never to the fee.

MemorizeMaterial and nonpublic: the two tests

Test	Meaning
Material	A reasonable investor would find it important, or it is likely to move the price
Nonpublic	Not yet disseminated to the market (an announcement, filing or press release makes it public)

Memory hook Both words, both tests: price-moving and not yet out. One without the other is fine to use.

Know it cold An unprompted tip is not mosaic theory, however it arrived.

Key terms

material nonpublic information Memorize
mosaic theory Memorize
market manipulation Use it
loyalty to clients Use it
fair dealing Memorize
suitability Memorize
performance presentation Memorize
confidentiality Use it

Standards II and III: which question is being asked?

Market or client casefind out who or what is harmed

Integrity of capital markets Memorize Standard II
- II(A) Material nonpublic information do not act or cause others to act
- II(B) Market manipulation no practice meant to mislead the market
Duties to clients Memorize Standard III
- III(A) Loyalty, prudence and care clients first; act in their interest
- III(B) Fair dealing fair is not equal; pro rata
- III(C) Suitability IPS, objectives, constraints
- III(D) Performance presentation fair, accurate, complete
- III(E) Preservation of confidentiality with three exceptions

Formulas

Pro rata fill rate Use it

\text{Fill rate} = \frac{\text{shares received}}{\text{total eligible orders}}, \quad \text{allocation} = \text{fill rate} \times \text{order size}

Quick example

A manager receives 9,000 bonds. Eligible orders total 25,000. Fill rate 9,000 ÷ 25,000 = 36%. A client who ordered 5,000 receives 0.36 × 5,000 = 1,800.

On your calculator

9000÷25000×5000= 1800

9000ENTER25000÷5000× 1800

ENTER enter (on the HP, puts the number on the stack)

Cases on duties to employers and investment analysis

Known

MemorizeWhat each case type requires

Case	Standard	Required action
Leaving a firm	IV(A)	Prepare on your own time. No soliciting or taking records, models or client lists
Bonus or gift tied to your job	IV(B)	Disclose to the employer and get written consent before accepting
Supervisor without procedures	IV(C)	Decline supervision in writing until adequate procedures exist
Suspected violation under you	IV(C)	Investigate promptly and restrict the activity until it is cleared
Research or model	V(A)	Understand and test it; reasonable basis and thorough analysis
Strategy or process change	V(B)	Tell clients promptly; process, costs and risks
Records	V(C)	Keep records that support the work; at least 7 years is the recommended minimum

Memory hook Employer: what you build stays; supervisors act; process changes are told; records back it up.

Know it cold Planning is allowed, taking and soliciting are not. A supervisor does not wait for a complaint.

Key terms

loyalty to the employer Memorize
additional compensation arrangements Memorize
supervisory responsibility Memorize
reasonable basis Memorize
communication with clients Memorize
record retention Use it

Standards IV and V: employer duties and research duties

Employer or analysis casewho is owed the duty, and what is the work product?

Duties to employers Memorize Standard IV
- IV(A) Loyalty work product and client records belong to the employer
- IV(B) Additional compensation written consent for any outside benefit tied to the job
- IV(C) Responsibilities of supervisors procedures, prompt investigation, restriction
Investment analysis and recommendations Memorize Standard V
- V(A) Diligence and reasonable basis tested, understood, thorough
- V(B) Communication with clients process, costs, risks and changes
- V(C) Record retention support for the work, kept at least 7 years

Cases on conflicts of interest and CFA responsibilities

Known

MemorizeWhat each case type requires

Case	Standard	Required action
Conflict that can be avoided easily	VI(A)	Avoid it (reassign, recuse). Disclosure alone is the weaker answer
Unavoidable conflict	VI(A)	Disclose fully, prominently, in plain language
Personal trade and client order	VI(B)	Clients and employer first, then the member. Preclearance and blackout rules help
Referral benefit	VI(C)	Disclose to the employer, the client and the prospect before services are provided
Exam content	VII(A)	Do not disclose what was tested or not tested, or cheat
Describing candidacy or designation	VII(B)	"Passed Level I" is fine; no "CFA Level II" or false candidacy

Memory hook Avoid when you can, clients trade first, disclose referral pay before the engagement, describe the CFA program exactly.

Know it cold Avoid beats disclose when avoiding is easy. Prominent beats buried.

MemorizeCFA designation, quick reference

Statement	Verdict
"Passed Level I of the CFA Program" (true)	Proper
"CFA Level II Candidate" without being registered	Improper
"CFA Level II" as if it were a title	Improper: suggests a partial designation
"Registered candidate for the Level II exam"	Proper if registered

Memory hook Say what happened, never what you might become. Candidacy needs registration.

Know it cold No claim of superior performance because of the designation.

Key terms

avoid or disclose conflicts Memorize
priority of transactions Memorize
referral fees Memorize
conduct in CFA Institute programs Memorize
reference to the CFA designation Memorize

Standards VI and VII at a glance

Conflict or CFA casewho benefits, and was it disclosed before?

Conflicts of interest Memorize Standard VI
- VI(A) Avoid or Disclose Conflicts avoid if reasonable, otherwise disclose prominently
- VI(B) Priority of Transactions clients, employer, then personal
- VI(C) Referral Fees disclose before the engagement
Responsibilities as a CFA Institute member or candidate Memorize Standard VII
- VII(A) Conduct in CFA Institute programs exam integrity and confidentiality
- VII(B) Reference to the CFA designation accurate, no exaggeration

Cheat sheet · PDF · 4 A4 pages

Ethics Application on 4 pages

What to memorize, the concept maps, every formula with a worked example and keystrokes for the TI BA II Plus and HP 12C, how each idea is asked, and the traps. Print it, or keep it on your phone.

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