Archegos Capital Management quietly builds $160 billion of leveraged equity exposure across five prime brokers. No single broker sees the full position. When the margin calls land in March 2021, Credit Suisse loses $5.5 billion, Nomura loses $2.9 billion, and a family office with $10 billion of assets detonates an estimated $100 billion of market value in 48 hours. Every broker relied on disclosures the family office was not required to provide. Every risk officer assumed someone else had the full picture.
The investment industry is best framed as an ecosystem built from three components: participants, technologies (governance, processes, regulation), and markets (investment markets and the marketplace for talent and services). The key participants are asset owners, asset managers, consultants, brokers, investment banks, service providers, and regulators.
The players connect through a chain. The principal is the ultimate owner of the assets, an individual or a legal entity such as a pension fund or sovereign fund.
An asset owner occupies a delicate position with traits of both principal and agent. The curriculum gives five qualifying characteristics of an asset owner: (1) works directly for a defined...
Common mistakes
- Treating Level 2 ethics questions as Level 1 vocabulary tests. At Level 1, questions ask "which principle describes X?" At Level 2, questions ask "in this scenario, which principle is most directly implicated, and what action does its component require?" Memorizing definitions without practicing scenario resolution misses the most-direct-fit questions.
- Treating disclosure as a complete resolution. The framework's sequence for conflicts is avoid where possible, then manage where avoidance is not possible, using transparency plus an ethical framework, process, and practice. When "disclose and proceed" appears alone as an answer choice, it is almost always incomplete.
- Confusing suitability with fiduciary duty. Suitability asks whether a recommendation is acceptable given the client's profile. Fiduciary duty asks whether it is the best available option. A manager who recommends a suitable but inferior fund because of a revenue-sharing arrangement satisfies suitability and violates loyalty.
Bottom line
- Eight principles, two groups. Doing the Right Things: ethical and professional behavior, partnership, client-first mindset, high standards of conduct. Doing Things Right: high standards of practice, professional work, continued learning, collaboration.
- Four facets of purpose: intrinsic, core, fundamental, and collateral, combined into one mission.
- Value = Purpose + Professionalism + Assurance. The organizational chain runs Purpose to Professionalism to Strategy (five models) to Outcomes.
- Assurance rests on four components: fiduciary duty, license to operate, trust, and management of conflicts of interest.
Exam shortcut
Place the scenario in the correct principle group before picking the specific principle, then identify the component that dictates the action. If the scenario is about strategy, purpose, client alignment, or how the relationship is constructed, the answer is in Doing the Right Things. If it is about process, execution, due diligence, or risk control, the answer is in Doing Things Right.
The full lesson (about 4,520 words, 30 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- investment industry
- value creation
- fiduciary duty
- client first
- intro ethical principles
- foundations
- principles for professionals
- case studies
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