- CFA Exams
- 2023 Level I
- Topic 10. Ethical and Professional Standards
- Learning Module 71. Guidance for Standards I-VII
- Subject 3. Standard I (C) Misrepresentation
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Subject 3. Standard I (C) Misrepresentation PDF Download
Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.
Members and candidates shall not make any statements, orally or in writing, that misrepresent:
- The services that they or their firms are capable of performing.
- Their qualifications or the qualifications of their firms.
- Their academic or professional credentials.
A misrepresentation is any untrue statement of a fact or any statement that is otherwise false or misleading. This standard relates to misrepresentations by members about their qualifications and services, and it disallows any misleading guarantees about investments and their returns.
Members and candidates shall not make or imply, orally or in writing, any assurances or guarantees regarding any investment except to communicate accurate information regarding the terms of the investment instrument and the issuer's obligations under the instrument. It prohibits statements or assumptions that an investment is "guaranteed," or that superior returns can be expected based on the member's past success.
This standard applies to oral representations, advertising, electronic communications (including web pages and emails) and written materials (whether publicly disseminated or not).
Note: This standard does not rule out correct statements that some investments are actually guaranteed in some way with guaranteed returns. Examples of these types of investments would be insurance contracts or short-term treasury securities.
This standard also prohibits plagiarism in the preparation of material for distribution to employers, associates, clients, prospects or the general public. Plagiarism involves copying or using substantially the same materials as those prepared by others without acknowledging the source of that material. The only exception is copying factual information, as published by several recognized financial institutions, as well as statistical information.
- Members and candidates should always attribute quotations, projections, data, model/product ideas, and methodologies to their sources and/or authors.
- This standard applies to written materials, oral communications, visits with clients, use of audio/video media, and electronic data transfer.
- Members and candidates can use recognized sources (S&P, Moody's) of factual information (information that is already in the public realm) without acknowledgement.
- Situations to which this Standard applies also depend on whom the member is representing. Members are not required to attribute ideas, methodologies, etc. developed by people within their firms when speaking with clients and prospects.
- Members and candidates should keep copies of materials used in preparing research reports.
In ethical terms, a member or candidate indulging in plagiarism is not conducting himself or herself with integrity. By plagiarizing, he or she is not only stealing the ideas of others, but also exposing himself or herself to violations of other standards by making recommendations that may not have a reasonable basis and may not avoid material misrepresentations.
Procedures for compliance
Members can prevent unintentional misrepresentations of the qualifications of services the member or the member's firm is capable of performing if each member understands the limit of the individual's or firm's capabilities and the need to be accurate and complete in presentations.
Firms can provide guidance for employees who make written or oral presentations to clients or potential clients by providing a written list of the firm's available services and a description of the firm's qualification, and compensations that are both accurate and suitable for client or customer presentations. Firms can also help prevent misrepresentation by specifically designating which employees are authorized to speak on behalf of the firm. Whether or not the firm provides guidance, members should make certain that they understand the services the firm can perform and its qualifications.
In addition, members should prepare a resume of their own qualifications and a list of services they are capable of performing to use in accurate presentations to clients. Members should use written resumes and job descriptions of firm services when making presentations to clients or prospective clients to help each member focus on the firm's and the member's own strengths and limitations. Firms can aid member compliance by periodically reviewing employee correspondence and documents that contain representations of individual or firm qualifications.
To avoid plagiarism, members and candidates should take the following steps:
- Maintain copies of all information used to generate a report.
- Attribute quotations other than recognized financial and statistical reporting services.
- Attribute summaries to the relevant author.
A member or candidate is in violation if he or she:
- Uses excerpts from reports done by others without acknowledgement.
- Cites quotes attributable to "leading analysts" and "investment experts" without specific reference.
- Uses charts and graphs without stating sources.
- Copies computer spreadsheets without obtaining the permission of the owner(s).
- Presents a firm's own research in an expert witness situation without attributing the research to its specific source.
- Presents a firm's own research to clients, prospects and the general public: NOT a violation as the member does not need to attribute the source specifically in this case.
Your prospective client is unsure whether to contract with you for services. You mention that investment decisions are made by a team of five professionals, each a CFA charterholder, and that this is an above-average level of expertise for a firm of this size and should lead to superior investment performance. However, even if individuals holding CFA charters make decisions, you cannot infer that this will lead to superior performance. If you can substantiate the superior level of expertise among managers in your firm, then that part of your statement is okay.
An analyst calls himself a "portfolio management specialist." In fact, the analyst is just a trainee. The analyst violates the standard for misrepresenting his or her qualifications.
A firm advertises that investors can increase their returns by investing in money market funds rather than municipal funds. The firm doesn't mention that this statement is not true for investors in the highest tax bracket. The firm, therefore, violates the standard because the advertisement predicts performance for all investors without distinguishing the impact on investors in the highest tax bracket.
Kevin is the president of Shapiro Inc., an investment relations company. Kevin contracts with six publicly traded companies to electronically promote their stock. Kevin posts a profile and a strong buy recommendation for each company on Market Strategy's Internet site. Kevin also sends unsolicited email to 250,000 potential investors indicating that the stock is guaranteed to increase in value. The six companies compensate Kevin for the promotion with cash and stock. Neither the Internet site nor the emails disclose the compensation arrangement between Kevin and the six companies. Kevin has violated this standard because the Internet site and emails are misleading to potential investors. Kevin should not have guaranteed that the securities would increase in value. Kevin has also violated Standard VI. C (Referral Fees) by not disclosing the existence of an arrangement with the six companies through which he receives compensation in exchange for his services. Kevin may have also violated Standard V. A (Diligence and Reasonable Basis) if he failed to perform a diligent and thorough investigation appropriate to the circumstances of his investment recommendations.
An analyst is working late to complete an evaluation of a biotechnology firm. She finds another analyst's report which provides detail supporting her general opinion of the firm. She includes these details and slightly edits the conclusion of the report to include in her own. The analyst has violated this standard by not recognizing the source of her analysis. If she provides attribution to the original analyst, she should be okay.
An analyst includes information regarding historical interest rates collected from a Federal Reserve website. He uses this information as part of a report without attribution. If the source is considered well-recognized and the information is purely factual, this is not a violation of the standard.
Your firm develops a product to which you have not contributed. If you use it, as a representative of the firm, you need not say that you had nothing to do with its development. However, if you use it in your own private capacity (e.g., to give expert advice as a witness) then you need to attribute it to the firm's specific staff and not to yourself.
Learning Outcome Statementsdemonstrate 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.
CFA® 2023 Level I Curriculum, Volume 6, Module 71
User Contributed Comments 11
|shawn||The Code states that plagiarising and using others work without asking for permission is a violation of the Code. Suppose that a CFA candidate downloaded songs with Marilyn Mansson (MM) on the internet that he listened to while working on his ethics questions in the cfacenter testbank. Did the person
a) violate the Code by downloading copyrighted music?
b) exercise reasonable judgement in his ethics preparation while being influenced by the death-rocker MM?
|dmitry||a) yes against CFA 2C
b) why not? Marilyn Manson loves his mother as much as any CFA candidate...
|valeris||a) NO - since MM copyrighted material was not disctributed to clients, supervisors, etc.
b) personal choice
|kforcfa||so if it's firm's own research you dont have to quote who exactly wrote it?|
|krisscfa||Key Words : "Guarantee" , "Plagiarism"|
|AUAU||i think download songs not "plagiarism" as to clients or others but infringe a copyright & may violate a local law|
|miaopbc||What's the difference between getting a referral fee (even if you disclose) and accepting gifts greater than $100? Why is one a violation and the other is not|
|guest||Sorry but a silly question: in example 5, if both analysts come from the same company, does analyst 1 violate the standard?|
|gerdvar||@shawn tricky question, since the statement didn't specify whether MMs songs were legally or illegally downloaded, which would be a violation of I(D) by stating the member or candidate is a filthy downloader. Thus B, by elimination.|
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