The investment industry is constantly changing, and its Code and Standards (the CFA Institute Code of Ethics and Standards of Professional Conduct) must also adapt and evolve to maintain its relevance in promoting the highest standards of ethics in the investment community. 

The Code and Standards to which all CFA Institute members must adhere are reviewed approximately every five years, though the COVID-19 pandemic impacted the latest version, which was last revised in 2014. Feedback is solicited throughout the revision process, including with the Consultation Paper^[i] in May 2022 and the upcoming Exposure Draft. The goal is to have changes come into effect in late 2023 or early 2024. More information can be found in CFA Institute’s online FAQ document.

Summary of the seven potential Code and Standards revisions

1. Adding a General Transparency Standard

Several standards currently address information members must disclose to clients, including Standard V(B) The Investment Management Process; VI(A) Conflicts of Interest; VI(C) Referral Fees; and II(C) Performance History. The potential change would introduce a new broad transparency standard that would broaden the applicability outside the scope of the client relationship.

Language could include: “Members and candidates must make reasonable efforts to provide communications related to their professional activities in a fair, accurate, timely, prominent, complete, and understandable manner and use plain language.”

2. Revising the conflict-of-interest standard to address avoiding conflicts of interest

Conflicts of interest are addressed under Standard VI(A), where full and fair disclosure of any conflict of interest is mandated, but avoidance of actual or perceived conflicts of interest is only included in the associated best practices. This means that avoiding conflicts of interest is not a requirement of the Code and Standards. The proposal adds avoidance to the standard, which could state, “When feasible, members must avoid conflicts that could impair their independence and objectivity and interfere with their duties to clients and their employer.”

3. Adding a standard requiring disclosure relating to the nature of services and fees, costs, or compensation

There is currently no requirement to specifically disclose the fees or costs assessed to clients or compensation paid to members or candidates. As such, one consideration is to add a new standard requiring disclosures relating to the nature of services and fees, costs, or compensation. 

Language could include: “Members and candidates must provide effective disclosures to clients and potential clients about the nature of the services provided, along with costs and fees associated with those services.”

4. Supplementing the supervisory standard to require senior leaders to promote an ethical culture

The change would supplement the current standard, Standard IV(C) Responsibilities of Supervisors, with a requirement to establish and promote an ethical culture in their firm. New language could include: “Members who are supervisors or senior leaders within the firm must make reasonable efforts to establish and promote a culture of ethical conduct and integrity within their firm.”

5. Establishing an exception to the confidentiality standard relating to impaired clients

Standard III(E) Preservation of Confidentiality currently includes three exceptions:  

1. The information concerns illegal activities on the part of the client or prospective client
2. Disclosure is required by law
3. The client or prospective client permits disclosure of the information

A fourth exception is proposed to assist clients who exhibit an inability or a decreasing ability to make informed decisions. The exception could allow investment professionals to disclose client matters to protect the interests of their clients in these situations.

Language could include: “4. Disclosure protects the interest of the clients who demonstrate diminished mental or cognitive capacity that prevents making informed decisions.”

6. Adding a new standard specifically requiring competency

The potential new standard would lay out a baseline level of competency for members. This would require ongoing training and learning, including “participation in credentialing or training programs; attending educational events or professional conferences; writing, researching, or reviewing academic papers; and participating on industry panels.”

Proposed language could include: “Members and Candidates must act with and maintain the competence necessary to fulfill their professional responsibilities.”

7. Consolidating and combining specific standards

This section includes two possible changes:

• Removing Standard III(D) Performance Presentation, incorporating it into the misrepresentation standard and new transparency standards
• Removing Standard IV(B) Additional Compensation Agreements and Standard VI(C) Referral Fees and incorporating them into the revised conflict-of-interest standard 

Want to weigh in on these potential changes?

All CFA Institute members are bound to the Code and Standards and have the chance to weigh in on any potential changes. The first opportunity to comment on the Consultation Paper has passed, but feedback will be solicited again for the Exposure Draft later this year.

Need a refresher on the Code and Standards?

Read the Code of Ethics and Standards of Professional Conduct.^[ii]

Read the latest Guidance for the Code and Standards.^[iii]

Test your application of the Code and Standards with the Ethics in Practice Casebook (2nd edition).^[iv]

Looking for a translation of the Code and Standards?

^[iii] CFA Institute. “Guidance for the Code of Ethics and Standards of Professional Conduct.” CFA Institute, last updated 2019.

^[iv] CFA Institute. Ethics in Practice: Ethics in Investment Management Casebook (Second Edition). CFA Institute, 2019.