Ethics & Professional Standards accounts for 15–20% of the Level I exam and is the single highest-weighted topic — making it one of the most valuable areas to master. The curriculum is built around the CFA Institute Code of Ethics, the seven Standards of Professional Conduct, and the Global Investment Performance Standards (GIPS). Unlike quantitative topics, Ethics is tested through scenario-based questions that require you to identify violations and select the most appropriate course of action.
Standards I–VII: know the exact title and number of each. Violations always appear in the order: identify the standard, state what was violated, state the correct action.
Independence and Objectivity (Standard I-B): gifts from clients are permitted only if they cannot reasonably compromise objectivity; gifts from non-clients require pre-approval.
Material Non-Public Information (Standard II-A): a member cannot trade or cause others to trade on MNPI. The test is whether a reasonable investor would consider the information important — not whether it is secret.
Suitability (Standard III-C): suitability is assessed at the portfolio level, not on an investment-by-investment basis. Know the difference between retail and institutional client IPS requirements.
GIPS: composite construction (all fee-paying discretionary portfolios must be included), minimum 5-year track record (building to 10), and annual presentation are the highest-yield GIPS areas.
Confusing "best execution" (Standard III-A) with cheapest commission — best execution means best outcome for the client overall, including research and services received.
Treating the "reasonable basis" requirement (Standard V-A) as satisfied by any third-party research; members are still responsible for performing their own diligence before recommending.
Missing that GIPS composites must include ALL fee-paying discretionary portfolios — you cannot cherry-pick strong performers.
Greymont Prep’s diagnostic AI figures out exactly why you get Ethics & Professional Standards questions wrong — not just which concept, but the specific reasoning error. Seven days free, no credit card.