How to Study CFA Ethics: The Standards Without the Guesswork

Ethics is the largest topic on CFA Level I, at 15–20% of the exam. On 180 questions, that is roughly 27 to 36 of them. It also matters beyond its weight: CFA Institute applies an ethics adjustment, so for candidates close to the passing line, their ethics performance can move them above or below it.

Ethics also misleads people. It reads like common sense, so candidates skim it. Then they lose points on questions where two answers both sound reasonable. This guide covers what is tested, the traps that cause most wrong answers, and a routine that works.

What Level I ethics covers

The ethics readings at Level I include:

• Ethics and trust in the investment profession: why ethics matters to the industry, and a framework for ethical decisions.
• The Code of Ethics and the Standards of Professional Conduct: the core of the topic. The Code sets six broad principles. The Standards turn them into specific rules.
• The Standards' guidance and application: examples showing how each Standard applies in practice. Most exam questions are built like these.
• An introduction to GIPS, the Global Investment Performance Standards: what they are, who they apply to and why firms comply.

The seven Standards at a glance

You do not need to quote the Standards word for word. You do need to know which one a situation falls under, what it requires and how strict it is.

How ethics questions are built

Most questions describe a short situation and ask whether someone violated the Standards, which Standard applies, or what they should have done. Three examples, in the style of the exam:

Example 1. An analyst covers a listed airline. After she publishes a positive report, the airline sends her two business-class tickets for a holiday. She accepts and tells no one, and is sure the gift will not affect her next report.

She violated Standard I(B), independence and objectivity. A gift of that value from a company she covers could reasonably be expected to affect her independence, and her own belief that it will not is not enough. Modest gifts and entertainment are acceptable. Valuable gifts from a company you cover are not.

Example 2. A portfolio manager decides to buy a stock for all of his clients' accounts. Before placing the client orders, he buys some for his own account.

He violated Standard VI(B), priority of transactions. Client and employer transactions come before personal ones. It does not matter whether his personal trade moved the price.

Example 3. An analyst counts the lorries leaving a manufacturer's factory each week from a public road, combines this with the company's published accounts and concludes that sales are beating forecasts. She changes her recommendation to buy.

No violation. This is the mosaic theory: combining public information with nonpublic information that is not material on its own is allowed under Standard II(A). The conclusion can be material. What matters is that no single piece of information was material and nonpublic.

The traps that cause most wrong answers

"No harm was done." A question tells you nobody lost money, or that the trade was profitable for the client. That does not change anything. The Standards are about conduct, not outcomes.

"Disclosure fixes it." Disclosure is the right answer to many conflicts, but not all. Some situations need more: for example, Standard IV(B) requires written consent from your employer before you accept compensation that could compete with their interests. A quick mention is not enough.

"It is legal, so it is fine." Under Standard I(A), you follow whichever is stricter, the law or the Code and Standards. When local law allows something the Standards forbid, the Standards win. If you know others are breaking the law or the Standards, you must dissociate from the activity.

"I meant well." Good intentions do not excuse a violation. Helping a friend by sharing a client's position, or rounding up a performance figure to "show the strategy fairly", still breaks Standards III(E) and III(D).

Picking the most cautious answer every time. The strictest option is not always right. The Standards often say what is allowed, too: modest gifts, mosaic research, using a reasonable third-party research provider after checking its quality. Questions test these permissions as much as the prohibitions.

Rules worth knowing exactly

A few details come up often enough to learn precisely:

• Record retention (V(C)): when no regulation says otherwise, CFA Institute recommends keeping records for at least seven years.
• Suitability (III(C)): in an advisory relationship, gather the client's objectives and constraints in an investment policy statement and review it at least annually.
• Referral fees (VI(C)): disclose them to employers, clients and prospective clients before entering into the relationship.
• Supervisors (IV(C)): you must make reasonable efforts to make sure the people you supervise comply. Having adequate procedures and enforcing them is what counts, not preventing every possible violation.
• Referring to the CFA designation (VII(B)): "CFA" is used as an adjective after a name, never as a noun. Candidates may say they passed a level, but there is no partial designation such as "CFA Level II".
• Confidentiality (III(E)): keep client information confidential unless it concerns illegal activity, the law requires disclosure, or the client allows it.

A routine that works

Start early. Read the Code and Standards in your first month, along with the guidance and examples for each Standard. Read the examples carefully: they are the closest thing to real exam questions.

Then little and often. Do 15 to 20 ethics questions every week for the rest of your preparation. Ethics is about pattern recognition, and that builds with repetition spread over months, not with one long weekend.

Review the reasoning, not just the answer. For each question you miss, name the Standard and write one line on what it requires. If your answer was right but your reasoning was different from the explanation, treat it as a miss too.

Keep a short trap list. Note the patterns that catch you: perhaps you always assume disclosure is enough, or you miss "least likely" in the question. Read the list before every practice session and every mock.

Daily in the final month. In the last four weeks, a small daily set of ethics questions is worth more than an occasional big block.

How JephAi helps

• A full ethics chapter covering the Code, every Standard and its guidance, plus GIPS.
• Exam-style ethics questions with an explanation for every option, including why the tempting wrong answers are wrong.
• Analytics that weigh ethics by its share of the exam, so you can see when it is costing you points.
• Jeph, an AI tutor you can ask about the page you are reading (Advanced plan).

Try JephAi free for 7 days, no card needed. Start your free trial.

Sources: CFA Institute Level I topic weights; CFA Institute Code of Ethics and Standards of Professional Conduct and the accompanying Standards of Practice Handbook.