A pension CIO allocates a hot IPO entirely to the fund's largest plan, the one whose board just approved a fee increase for her firm. Three smaller plans receive nothing. Six months later, CFA Institute opens an investigation triggered by a junior analyst's Professional Conduct Statement.
Every CFA charterholder, member, and candidate pledges all six. They are not ranked, a breach of any one is a standalone violation.
- Act with integrity, competence, diligence, and respect
- Place client and professional interests above personal interests
- Use reasonable care and independent professional judgment
- Practice and encourage professional and ethical conduct
- Promote the integrity of global capital markets
- Maintain and improve professional competence
Component 1 (Integrity) extends beyond honesty. A PM who presents a factually correct but misleading composite (emphasizing outperformance while burying drawdowns) violates integrity through selective emphasis. Integrity demands you not mislead through omission, selective data, or ambiguous framing.
Component 2 (Client Interests) is the fiduciary anchor. No de minimis exception. A PM who directs a single trade to a broker for concert tickets has violated this component as...
Common mistakes
- Selecting a Standard that is relevant but not primary. L3 asks for the "most likely" or "most directly" violated Standard. Multiple Standards may apply, but only one is most direct. The specific harm determines the primary Standard.
- Assuming disclosure cures conflicts. Disclosure is necessary but not sufficient. Standard VI(A) requires disclosure AND management of conflicts. "I told the client" is not a complete response.
- Treating the Code components as ranked. All six components are equal. A violation of Component 6 (competence) is as serious as Component 2 (client interests). There is no hierarchy.
Bottom line
- Six Code components: integrity, client interests above personal, independent judgment, encourage ethical conduct, promote capital market integrity, maintain competence
- The six components are not ranked, each is a standalone obligation, so violating competence is as serious as violating client interests
- Seven Standards translate the Code into enforceable rules. Standards I, III, and VI generate the most L3 questions
- The "more strict" rule: when local law and CFA Standards conflict, follow whichever is stricter, jurisdiction by jurisdiction
Exam shortcut
When the vignette involves an allocation across multiple clients, check Standard III(B) Fair Dealing first, it is almost always the primary violation. When the vignette involves information received from a company insider, check Standard II(A) MNPI. When the question asks "which Code component," match the specific harm: dishonesty = integrity, self-dealing = client interests, knowledge gap = competence. Remember: Most direct Standard wins. Disclosure does not cure conflicts.
The full lesson (about 2,317 words, 15 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- code and standards
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