A framework for ethical decision making
Use four phases. Identify the facts, stakeholders, duties owed, ethical principles and conflicts of interest. Consider situational influences, extra guidance and alternative actions. Decide and act. Reflect afterwards on whether the outcome was as expected, and why.
Before this: Challenges to ethical behavior, and ethical vs legal standards
On the exam
- Compare and contrast ethical standards with legal standards
Describe a framework for ethical decision making. Expect "in which phase would the analyst do this?" items, where the trap is putting seeking advice or listing alternatives in the wrong phase.
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.
You know this one. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still do.
You tested strong here. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still know it.
Why use a framework at all?
Laws, standards and codes guide behavior, but judgment is still needed when several stakeholders pull in different directions. An ethical decision-making framework is a structured way to examine a choice from several viewpoints. Investment professionals already analyze decisions for profit and loss. The framework adds the ethical view, so you notice what a short-term, self-focused look would miss, and so you can explain and justify what you did.
A code of ethics is necessary but not sufficient. Like any skill, ethical decision making improves with practice, and a firm culture of integrity, led from the top, makes it far easier.
What are the four phases?
Memorize
| Phase | What you do | Example questions |
|---|---|---|
| Identify | Relevant facts; stakeholders and duties owed to each; ethical principles; conflicts of interest | Who is affected? What do I owe the client, my employer, the market? |
| Consider | Situational influences and personal biases; additional guidance; alternative actions | What is pushing me? Who can I ask? What else could I do? |
| Decide and act | Choose the action; sometimes start over if more information is needed | Is this the best of the alternatives for all stakeholders? |
| Reflect | Assess the outcome after acting; learn for next time | Did it turn out as I expected? Why or why not? |
- 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
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- 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
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- Decide and act Memorize choose the best option for all stakeholders
- Reflect Memorize was the outcome as anticipated, and why?
Identify . Separate facts from opinions and biases, and note the facts you lack. List the stakeholders and the duties owed to each. Name the ethical principles and legal requirements in play. Spot any conflicts of interest , including conflicts between your own duties, such as to a client and to your employer. A useful order of duties is: the integrity of the markets and the profession, then clients, then the employer, then yourself.
Consider . Ask what situational influences and personal biases might distort your thinking (a wish to please the boss, a bonus, status). Seek guidance, ideally from someone not exposed to the same pressures: compliance, a mentor, outside counsel, firm policy and the Code and Standards. Then generate alternative actions and weigh them. Picturing how an ethical role model would act can help.
Decide and act . Choose the option that best serves all stakeholders, and carry it out. If you cannot decide without more information, go back and gather it.
Reflect . Afterwards, ask whether the outcome was as anticipated and why. Had you found all the facts, stakeholders and conflicts? Had you recognized the pressures and sought enough guidance? Had you weighed enough alternatives? Reflect more than once, as longer-term consequences appear.
The process is often iterative. New facts can send you back to an earlier phase, and sometimes no fully acceptable solution exists. The framework still helps you reach the best possible decision, though it cannot guarantee a good outcome.
A worked case: the resort week
A portfolio manager is offered a week at a resort by a broker that handles much of the firm’s trading.
- Identify. Facts: the value of the trip, its timing, and how much business the broker does with the firm. Stakeholders: the clients who pay the commissions, the employer and the manager. Duties: loyalty to clients and best execution for their trades. Conflict: the manager’s personal benefit against the clients’ interest in the best execution.
- Consider. Influences: the size of the gift and the pull of a friendly relationship. Guidance: the firm’s gift policy and compliance. Alternatives: decline; accept only with written employer approval; pay for the trip personally.
- Decide and act. Decline the trip. A week away with flights, from a broker whose business depends on the firm, could reasonably be expected to sway the manager’s judgment, and employer approval does not remove that conflict with the clients. Keep reviews of execution quality independent of the relationship.
- Reflect. Did declining strain the relationship? Did execution quality change? Does the gift policy need updating?
Try this 0 of 3
- Work through every case with every step right first time
- Order the duties first time in the resort case
- Get the early-look case right first time
Case 1 of 3 The resort trip
Nadia Ferro manages equity portfolios at Halvern Asset Management. Brannock Securities, a broker that handles about a third of the firm's client trades, invites her to a week at a beach resort with flights paid. The invitation arrives two weeks before the firm's annual review of which brokers it uses. The trades are paid for with commissions charged to client accounts. Nadia has worked with Brannock's sales trader for years and likes him. Halvern has a written gift policy.
Step 1 of 6 Identify: the facts
Which fact matters most to her decision?
Read the case, then answer each step. 3 cases.
Exam tip Match the verb to the phase. List, name, spot conflicts: Identify. Ask for advice, list options, notice pressure: Consider. Choose and do: Decide and act. Review: Reflect.
Go deeper Why reflection improves decisions and firm culture
Without a look back, each decision is a one-off and the same blind spots recur. Reflection turns experience into learning: you notice that you ignored a stakeholder, underestimated a pressure or never asked for advice. Done openly, it also shows colleagues that questioning a decision is normal and safe, which is the heart of a culture of integrity. Reflecting more than once matters, because some consequences only appear months later.
Go deeper Linking the framework to the Code and Standards
The framework is a process. The Code of Ethics and Standards of Professional Conduct, covered in the next module, are the content you feed into it: they supply the principles to name in Identify, they are one of the sources of guidance in Consider, and they set the minimum you must not fall below in Decide and act. When a vignette asks what the professional should do, run the phases in your head and test each option against the Standards.
Memorize this
MemorizeThe four phases
| Phase | What you do |
|---|---|
| Identify | Relevant facts; stakeholders and duties owed to each; ethical principles; conflicts of interest |
| Consider | Situational influences and personal biases; additional guidance; alternative actions |
| Decide and act | Choose the action and carry it out |
| Reflect | Was 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
| Rank | Owed to |
|---|---|
| 1 | The integrity of the markets and the profession |
| 2 | Clients |
| 3 | The employer |
| 4 | Yourself |
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.
- 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?
How it is asked
-
Which phase is this?
Listing the clients, the employer and the market as parties affected by a decision is part of…
Identify (stakeholders and duties owed).
-
Seeking advice
An analyst asks compliance for guidance before deciding whether to accept a gift. Which phase?
Consider (additional guidance). Trap: Decide and act, because the decision has not been made yet.
-
Looking back
After acting, a manager reviews whether the decision turned out as expected. Which phase?
Reflect.
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Generating options
In which phase does the decision maker list other courses of action?
Consider (alternative actions). Skipping this is a classic error.
Exam traps
- Putting "seek advice from compliance" in Identify or Decide and act. It is Consider.
- Treating Reflect as optional. It is a phase of the framework.
- Skipping alternatives. Consider is where options are generated.
- Treating the framework as a one-way checklist. It is often iterative: you may need more facts and start again.
Checkpoint
4 exam-style questions. About 90 seconds each.
1Listing the clients, the employer and the market as the parties affected by a decision is part of which phase of an ethical decision-making framework?
2Before deciding whether to accept a gift from a supplier, an analyst asks the compliance department for guidance. This is part of which phase?
3After acting, a manager reviews whether the decision turned out as expected and what to do differently next time. This is the:
4An analyst identifies the facts and stakeholders, then realizes that she cannot decide without more information and returns to gather it. This best illustrates that the ethical decision-making framework is:
Key takeaways
- Identify, Consider, Decide and act, Reflect.
- Identify: facts, stakeholders and duties owed, principles, conflicts of interest.
- Consider: situational influences and biases, additional guidance, alternative actions.
- Reflect afterwards to learn. A framework builds judgment but does not guarantee a good outcome.
All Ethical and Professional Standards formulas, every lesson
Practice exam-style questions on Ethics and Trust in the Investment Profession
Questions about this lesson?
Where this comes back
- Code of Ethics and Standards of Professional Conduct Ethical and Professional Standards
- Ethics Application Ethical and Professional Standards
Questions candidates ask
What is the CFA ethical decision-making framework?
A four-phase tool for working through dilemmas: Identify (facts, stakeholders and duties, principles, conflicts), Consider (situational influences, extra guidance, alternative actions), Decide and act, then Reflect on the outcome. It is often iterative.
What happens in the "consider" phase?
You examine the pressures and biases acting on you, seek guidance from trusted sources such as compliance, a mentor, firm policy or the Code and Standards, and generate alternative actions before you choose one.
Why is reflection part of ethical decision making?
Looking back at whether the outcome matched expectations shows what you missed, such as a stakeholder, a pressure or an option. That builds judgment for next time and, across a firm, strengthens its culture of integrity.
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