Standard I(E): Competence
Act with and maintain the competence your professional responsibilities require: the knowledge, skills and abilities for your role. What counts as competent depends on the role and changes as it grows. A bad outcome does not prove incompetence, and no particular training program is mandated.
Before this: Standard I(D): Misconduct
On the exam
- Demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity
- Recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct
- Identify conduct that conforms to the Code and Standards and conduct that violates the Code and Standards
New in the 2023 revision, so expect recognition items: taking on work beyond your expertise, or not keeping skills up to date. Know that a loss is not proof of incompetence and that no set number of training hours is required.
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.
What does Standard I(E) require?
Competence means having the knowledge, skills and abilities that a professional in your specific role needs to succeed. The Standard asks you to act with that competence and to maintain it. It supports the Code principles on competence and on maintaining and improving it, and it was added to the Standards in the 2023 revision.
Memorize
- Have the knowledge, skills and abilities your responsibilities require. Knowledge is the information you apply. Skills are the capabilities to perform tasks. Abilities are the capabilities and attitudes behind observable results.
- Competence is role-specific. A fine auditor may not be competent to assess compliance with the Global Investment Performance Standards (GIPS). A bond analyst taking over a private credit fund must learn the new area first.
- A loss or a wrong forecast does not, by itself, show a lack of competence.
- Maintaining competence is part of the duty: the Standard emphasizes not just reaching competence but keeping it as responsibilities change.
- No specific program is required.
- Knowledge, skills and abilities Memorize what the role needs
- Knowledge information applied to the function
- Skills capability to perform role-specific tasks
- Abilities capabilities and attitudes behind observable results
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- Ways to maintain it Memorize none is mandated
- Professional development or continuing education regular
- Certifications and designations studying for or earning them
- Conferences, seminars, webinars attending
- Employer training taking part regularly
- Self-study and expert groups reading, joining organizations
- New skills when the role changes become proficient first
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Where are the lines?
| Situation | Verdict |
|---|---|
| An equity analyst agrees to value complex derivatives for a client without the training to do so | Violation unless they build the competence or bring in qualified help |
| A competent manager’s fund underperforms after a reasoned decision | Not a violation |
| A planner’s knowledge of pension rules is ten years out of date and clients are advised wrongly | Violation: failure to maintain competence |
| A consultant studies and takes a course before running a first sustainable-investing manager search | Consistent with I(E) |
Try this 0 of 3
- Get the derivatives case right first time
- Clear the bad quarter first time
- Get every case right first time
Case 1 of 4 Derivatives by Friday
Sofia Marchetti, CFA, has spent eight years valuing listed retailers as an equity analyst at Brightwell Partners. A family-office client asks Brightwell to value its interest rate swaps and currency options for its auditors. Sofia has never valued a derivative, and the report is due in four days. Brightwell has a derivatives specialist in its fixed-income team. Her manager asks Sofia to take the job.
Step 1 of 5 Ready for this job?
Knowledge, skills and abilities the job needs: derivative valuation. What Sofia has: equity valuation. What should she do?
Read the case, then answer each step. 4 cases.
Exam tip Look at the job being done now, not at the person’s résumé or at the result. Is the person equipped for this role, and keeping up?
How do you show you meet it?
No particular continuing education or professional development plan is mandated. The Standard recommends considering the activities in the tree above: regular professional development, studying for certifications, conferences, employer training, self-study, expert groups and learning new skills when your responsibilities change. Which mix you choose is up to you, provided it keeps you competent for the role.
Go deeper Why competence became a Standard
Competence used to appear only as a principle of the Code. Principles are aspirations; Standards are duties that can be enforced. By moving competence into the Standards, the 2023 revision made clear that taking on work you are not equipped for, or letting your skills lapse, is conduct that can be sanctioned and not just a lapse in ideals. The new Standard also fits with the Code’s call to help others improve their competence.
Go deeper Competence and diligence are neighbors
Competence is the ability: having the knowledge and skill the role needs. Diligence, in V(A), is applying that ability to each decision with a reasonable basis and thorough work. A competent analyst can still skip the homework on a particular recommendation, and that is a V(A) problem. An analyst without the necessary skills, however diligent, is an I(E) problem. Exam options often put the two side by side, so ask which is missing: the capability, or the effort on this decision.
Memorize this
MemorizeStandard I(E): what it requires and what it does not
| Point | Rule |
|---|---|
| Duty | Act with and maintain the competence your responsibilities require |
| Made of | Knowledge (what you know), skills (what you can do), abilities (capabilities and attitudes behind results) |
| Depends on | The role; changes when the role changes |
| A loss or wrong forecast | Not proof of incompetence |
| Education alone | Not enough: a specialist may be out of depth in a new area |
| Training program | None mandated; you choose how |
| Status | New in the 2023 revision |
Memory hook K-S-A: Know it, Show it, Act on it. Competence is the job you do now, kept current.
Know it cold Recommended: ongoing professional development, studying for or earning certifications, conferences and webinars, employer training, self-study, expert groups, and becoming proficient when responsibilities change.
- Knowledge, skills and abilities Memorize what the role needs
- Knowledge information applied to the function
- Skills capability to perform role-specific tasks
- Abilities capabilities and attitudes behind observable results
-
- Ways to maintain it Memorize none is mandated
- Professional development or continuing education regular
- Certifications and designations studying for or earning them
- Conferences, seminars, webinars attending
- Employer training taking part regularly
- Self-study and expert groups reading, joining organizations
- New skills when the role changes become proficient first
-
How it is asked
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New field, no preparation
A fixed-income analyst leads due diligence on infrastructure equity funds, a field they have never worked in, with no study or help. Violation?
Yes, I(E). Build the competence or bring in an expert first. Trap: "a qualified professional".
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Bad outcome
A carefully researched position loses 30% after an unexpected accident. Violation of I(E)?
No. A poor result alone does not show a lack of competence.
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What is required
Under I(E), members and candidates are required to...?
Act with and maintain the competence their responsibilities require. Traps: a set number of hours; a designation for every service.
Exam traps
- Equating a poor result with incompetence. Competent professionals lose money and miss forecasts.
- Thinking a specific number of training hours is required. The Standard mandates no program.
- Thinking a designation or degree alone proves competence in every role.
- Treating competence as a one-time achievement. The Standard asks you to maintain it as your role changes.
Checkpoint
3 exam-style questions. About 90 seconds each.
1A fixed-income analyst is asked to lead due diligence on infrastructure equity funds, a field the analyst has never worked in. The analyst accepts and completes the review without any study or expert help. Did the analyst most likely violate the Standards?
2A manager's carefully researched position in a mining company loses 30% after an unexpected accident. Did the manager violate Standard I(E)?
3Under Standard I(E), members and candidates are required to:
Key takeaways
- New in the 2023 revision: act with and maintain the competence your role needs.
- Role-specific, and it changes as your job changes.
- Outcomes alone do not prove incompetence; no program is mandated.
- Before taking on unfamiliar work, build the skills or bring in qualified help.
All Ethical and Professional Standards formulas, every lesson
Practice exam-style questions on Guidance for Standard I: Professionalism
Questions about this lesson?
Where this comes back
- Standard II(A): Material Nonpublic Information Guidance for Standard II: Integrity of Capital Markets
- Standard V(A): Diligence and Reasonable Basis Guidance for Standard V: Investment Analysis, Recommendations, and Actions
Questions candidates ask
What is Standard I(E) Competence?
It requires members and candidates to act with and maintain the competence needed for their professional responsibilities. Competence means having the knowledge, skills and abilities suited to the specific role, and keeping them current as the role changes.
When was the competence Standard added?
In the 2023 revision of the Code and Standards. Competence was already a principle of the Code, but it now also has its own Standard, I(E), which makes it a specific duty.
Does Standard I(E) require continuing education?
No set program or hours are required. The Standard expects ongoing professional development to stay proficient, but you may do it through courses, certifications, employer training, conferences or self-study.
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